Private ruling: CGT - deceased estate, two year extension for main residence
Published: April 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time to the two year period to relevant year end? | A1: Yes

Relevant facts and circumstances: The deceased died in year ended 30 June 200X. One of the main assets of the deceased's estate was the deceased's house (the property). This was the principal residence of the deceased up to the date of death. The deceased purchased the property prior to September 1985 with their spouse, as joint tenants. After the deceased spouse died, the deceased acquired the spouse's interest in the property. Following the deceased's death, it was found that the deceased had made two wills which were substantially different. Court proceedings were undertaken to determine which will to administer the estate under. The property was sold in the relevant year. It had not been used to produce assessable income. Delay in the sale of the property was due to the complexity arising from the deceased having two wills at the date of death.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 118-195(1)

Reasons for decision: Summary: As per subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling, or your ownership interest in it, is disregarded if: (a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and (b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied. | Detailed Reasoning - And also one of these items: 1 the deceased *acquired the *ownership interest on or after 20 September 1985 and the *dwelling was the deceased's main residence just before the deceased's death and was not then being used for the *purpose of producing assessable income your *ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner ........... 2 the deceased *acquired the *ownership interest before 20 September 1985 the *dwelling was, from the deceased's death until your *ownership interest ends, the main residence of one or more of: (a) the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or (b) an individual who had a right to occupy the dwelling under the deceased's will; or (c) if the *CGT event was brought about by the individual to whom the *ownership interest *passed as a beneficiary - that individual In this case, the property was the deceased's main residence prior to the deceased's death. The property was not used to produce assessable income. The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion to extend the time period in which you can dispose of the property: · 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 (eg 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 determining whether or not to grant an extension the Commissioner is expected to consider whether, and to what extent, the dwelling is used to produce assessable income and how long the trustee or beneficiary held it. In this case, the delay was caused by the complexity of the deceased's estate. The administration of the deceased's estate could not be finalised until it was determined by the court which will the estate should be administered under. This made immediate distribution of the property under the will impossible and prevented the trustee from disposing of the property within the two year time limit, The property was never used to produce assessable income. Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit to the end of the relevant year.