Private ruling: Capital gains tax and deceased estates
Published: July 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

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 and their spouse purchased a property post CGT. The property included Lots T, S, Y and X. Lot X was the location of the main residence of the deceased and their spouse and was under 2 hectares. The properties were used in the course of carrying on an agriculture partnership with the deceased and their spouse. After a number of years the deceased's spouse passed away. The deceased spouse's interest in the property passed to the deceased at this time. The deceased passed away after a number of years. The deceased had occupied the home up until their death as their main residence. The executors of the estate were granted probate a number of months later and proceeded to organise for the disposal of the Lots. Lots T and S were disposed of within 2 years of the passing of the deceased. In order to dispose of X (inclusive of the dwelling) and Y, the executors were required to lodge a development application with council as they required boundary adjustments to allow wider setbacks that are required under new council regulations. The development application was not lodged in order to develop the property but lodged as a necessity to facilitate the disposal of the property. The development application was lodged and approved. Shortly after, contracts were exchanged for the disposal of Lot X (including dwelling) and Lot Y.

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 council requiring development applications to be lodged and approved. Lot X (including the dwelling) was disposed of shortly after the application was approved. In this case the Commissioner considers it appropriate to exercise his discretion to extend the 2 year period for the exemption from CGT for Lot X (including dwelling).