Private ruling: Capital gains tax
Date of advice: 25 January 2017
Published: July 2017
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 in relation to the property and allow an extension of time until XX August 20XX? | A1: Yes

Relevant facts and circumstances: The Grandparent passed away in 19XX. The deceased estate consisted of a main residence ('the property'). The Grandparent bequeathed their main residence in equal thirds to A, B and C. The Grandparent's will afforded B a right to occupy for life to the property. A passed away in 20XX. A's deceased estate contained their share of the property. D was the beneficiary of A's portion of the property. A's will did not contain a right for B to occupy the property for life. B permanently moved out of the property in 20XX. The three owners sold the property in 20XX.

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

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 states that if a dwelling passed to you as a beneficiary of an estate, then you are exempt from tax on any capital gain made on the disposal of the property if: ● the property was acquired by the deceased before 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 (the Commissioner has discretion to extend this period in certain circumstances). In your case, the property was received by A before 20 September 1985 by way of inheritance from the Grandparent's estate. During A's ownership period, the property was encumbered with a right to occupy for life to B. When A passed away in 20XX, A bequeathed their third share of the property to you. B continued to exercise their right to occupy the property until they moved in 20XX. The property was not sold within 2 years of A's date of death. You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the 2 year time period. 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 unforeseen or serious personal 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 Having considered the circumstances and the factors outlined above, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time until August 20XX.