Private ruling: Deceased estate and disposal
Published: May 2014
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2011

Ruling: Question and answer: | Will the Commissioner exercise his discretion to extend the 2 year period for the exemption from CGT for main residence acquired from a deceased person? | Yes.

Relevant facts and circumstances: The deceased, owned a property. The deceased passed away. The deceased had lived in the property until just prior to their death and had elected the dwelling to be their main residence. The deceased bequeath their estate to her children and fulltime carer in equal shares, however the will was contested by the deceased's children. After protracted legal proceedings, negotiations took place subsequently leading to a settlement between all parties. Supreme Court orders were made with the probate notice being issued shortly thereafter. The property was immediately placed on the market and disposed of more than 2 years of the deceased's passing.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-195.

Reasons for decision: Summary: Section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) provides a full CGT exemption for capital gains and capital losses made by a beneficiary or a trustee of a deceased estate from one of the specified CGT events in relation to a dwelling or the taxpayer's ownership interest in the dwelling. The exemption only applies if certain conditions are satisfied. A full exemption is available if the dwelling was acquired by the deceased person after 19 September 1985, the dwelling was the deceased's main residence just before the deceased's death, it was not being used to produce assessable income at that time and the individual disposed of the dwelling (e.g. by sale) within two years of the deceased's death, or within a longer period allowed by the Commissioner. The Commissioner has discretion to extend the two-year time period in relation to CGT events that happened in the 2008/09 income year and later income years. The explanatory memorandum (EM) to the Bill that added the discretion to Section 118-195 of the ITAA 1997, the Tax Laws Amendment (2011 Measures No 9) Bill 2011, includes the following non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion: • 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 unforeseen or serious personal circumstances arising during the two-year period (e.g. 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 reasons outside the beneficiary or trustee's control. In this case, it is acknowledged that the property was not disposed of within 2 years of the deceased's passing due to the deceased's will being contested by the beneficiaries. Once legal proceedings were concluded and probate issued the property was promptly place on the market and disposed of. In this case the Commissioner considers it appropriate to exercise his discretion to extend the 2 year period for the exemption from CGT.