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

Ruling: Q1: Does the two year period commence on the date of death of individual A? | A1: Yes. | Q2: If not, does the two year period commence on the date of death of individual B | A2: Not applicable. | Q3: 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? | A3: Yes. | Q4: If the Commissioner does not exercise his discretion, will the Estate be liable for capital gains tax (CGT)? | A4: Not applicable. | Q5: If the Estate is liable for CGT, will a partial exemption apply? | A5: Not applicable. | Q6: If the Estate is liable for CGT, what are the relevant dates and values that should be used to determine the cost base? | A6: Not applicable.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: • the application for private ruling, • the will of individual A and • the letter of probate. The property was purchased by the late the deceased and their spouse as joint tenants prior to 20 September 1985. The property was used solely as a main residence. No major capital works have been performed on the property. The property has never been used to produce assessable income. The property's land size is less than two hectares. The deceased's spouse passed away. At this point in time, the deceased became the sole owner of the property. The deceased remained in the property until their date of death. In accordance with the terms in the deceased's will, the property was to be held by the Trustee on trust to permit individual B to have full use occupation and enjoyment thereof or the rents and profits therefrom during their lifetime. Individual B resided in the property up until they passed away. Upon notification of the life tenant's date of death, the Trustees immediately engaged property services to tidy and clean up the property ready for sale. A caveat was placed on the property by the bankruptcy trustee as a residual beneficiary of the Estate had been declared an undischarged bankrupt. This issue was resolved and the property was placed on the market for sale. An auction was held but the property was passed in. A contract of sale was settlement occurred in the 2013-14 financial year. The delay in selling the property was due to the life interest granted to individual B and the complexity of the estate. The administration of the estate affairs could not be completed until the life interest had ended.

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

Reasons for decision: Detailed Reasoning - Question 1, 2 and 3: Subsection 118-195(1) of the ITAA 1997 allows you to disregard a capital gain (or loss) made on the disposal of a property acquired from a deceased estate, if certain conditions are satisfied. The conditions relevant to your circumstances are: • the deceased acquired the ownership interest prior to 20 September 1985 or • the property was acquired by the deceased 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, and • your ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner. In this case the deceased and their late spouse acquired a property prior to 20 September 1985. When their spouse passed away, the deceased became the sole owner of the property. When the deceased passed away, they granted a life interest to individual B. The life tenant lived in the property until they passed away. Subsection 118-119(1) of the ITAA 1997 applies where the property is acquired from a deceased estate. In this case, the property was acquired by the Trustees from the deceased estate of individual A, not individual B. The two year time period outlined above begins when the deceased passed away and not on the date of death of the life tenant. Therefore, the Estate will only be entitled to a full main residence exemption if the Commissioner extends the two year time period. | Detailed Reasoning - Extension of time: The Commissioner would be expected to exercise the discretion where the complexity of the deceased estate delays the completion of administration of the estate. 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. | Detailed Reasoning - Application to your circumstances: In this case, the delay in selling the property was due to the life interest granted to individual B. When individual B passed away, the Trustees attempted to sell the property but were unable to do so due to a caveat that had been placed on the property. Once this issue was resolved, the property was placed on the market for sale and an auction was held. The property eventually sold in the 2013-14 financial year We accept that the delay in selling the property was caused by the complexity of the estate. 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. As a result of extending the two year time limit, the conditions contained in section 118-195 of the ITAA 1997 will be satisfied. Accordingly, any capital gain or loss that arises as a result of the disposal of the property can be disregarded. | Detailed Reasoning - Question 4, 5 and 6: As the Commissioner has granted an extension of time to apply the main residence exemption these questions are not relevant.