Private ruling: Capital Gains Tax - disposal of dwelling
Published: June 2012
Ruling period: Year ending 30 June 2010
Date scheme commenced: 1 July 2011

Ruling: Q1: Can you disregard any capital gain or loss on disposal of the main residence of your surviving parent where settlement of the sale occurred more than two year's after their death? | A1: Yes

Relevant facts and circumstances: You were a joint beneficiary in a residential property. The property was not your main residence. The property was the main residence of your remaining parent who died in 2010. The property was purchased by your parents prior to 1985 as joint tenants. One of your parents died after 1985, and their 50% share passed to your surviving parent. A condition of your surviving parent's will was that a relative could live in the property until their death. The relative decided in that they could no longer live in the property. The property was put on the market for sale and a contract of sale was signed shortly after with a settlement date 28 days later. Due to delays with the purchaser's bank and guarantor, settlement was extended a further three days. Further delays caused by the purchaser's bank delayed settlement again for another three days. Settlement occurred more than two years after the death of your surviving parent. You have applied for the Commissioner's discretion to extend the two-year time period exemption from capital gains tax (CGT) on disposal of the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 108-5 | Income Tax Assessment Act 1997 Section 118-195

Reasons for decision: Summary: A capital gain or capital loss may arise if a CGT event happens to a CGT asset. A CGT asset is an asset that was acquired on or after 20 September 1985. Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) makes the disposal of a CGT asset a CGT event. Section 108-5 of the ITAA 1997 states that a CGT asset is any kind of property or a legal or equitable right that is not property. Real estate is a CGT asset under this provision. | Detailed Reasoning - Asset acquired from deceased estate: Special rules apply when an asset owned by a person just before they die, passes to their legal personal representative or to a beneficiary in a deceased estate. No capital gains tax is payable at this point. The deemed date of acquisition of property from a deceased estate, is the date of the deceased's death regardless of the actual date that legal title in the property passes to the beneficiary. Therefore, the date you acquired the property is the date of death of your surviving parent and CGT event A1 happened on the day the residence was sold. There are a number of different exemptions or exceptions that, if they apply, can mean that a capital gain or capital loss that you make as a result of a CGT event can be disregarded, either in full or in part. | Detailed Reasoning - Dwelling acquired from a deceased estate: Section 118-195 of the ITAA 1997 states that a capital gain or capital loss from a CGT event that happens in relation to a dwelling in which a beneficiary of a deceased estate has an ownership interest can be disregarded if: · the deceased acquired the dwelling on or after 20 September 1985 (post-CGT), and · the dwelling was the main residence of the deceased before their death, · the dwelling was not being used for income producing purposes, and · the beneficiary has disposed of their ownership interest within 2 years of the deceased's death Or if · the deceased acquired the dwelling before 20 September 1985 (pre-CGT) and · your ownership interest ends within 2 years of the deceased's death In your case, you acquired an ownership interest in the main residence of your surviving parent on the date of their death. The property was acquired by your parents as joint tenants prior to 1985. Your surviving parent held a 50% pre CGT ownership interest in the property and a 50% post CGT ownership interest in the property, which was acquired on the death of other parent after 1985. Settlement of sale of the property was effected more than two year's after the death of your surviving parent. However, due to amendments to sections 118-195(1) and 118-200(3) of the ITAA 1997 contained in the Tax Laws Amendment (2011 Measures No. 9) Act 2012 , the Commissioner can exercise his discretion to extend the time period where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death. The Commissioner can exercise his discretion in situations such as where: · the ownership of a dwelling or a will is challenged · the complexity of a deceased estate delays the completion of administration of the estate · a trustee or beneficiary is unable to attend to the deceased estate due to unforseen or serious circumstances arising during the two-year period (for example, the taxpayer or a family member has a severe illness or injury), or · settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control In exercising this discretion, the Commissioner will consider whether and to what extent the dwelling was used to produce assessable income and the period that the trustee or beneficiary held the ownership interest in the dwelling. In your case, the property was at all time used as your parent's main residence and was not used to produce assessable income. Further, your period of ownership interest in the dwelling was just over two years. Settlement of the sale of your late parent's residence was due to delays by the purchaser's bank which was outside of your control. Accordingly, the Commissioner's discretion will apply to grant you full exemption from CGT on the sale of the property.

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