Private ruling: Capital gains tax - deceased estate - Commissioner's discretion to extend the two-year period - main residence exemption
Published: January 2014
Ruling period: 3 November 2014
Date scheme commenced: 1 July 2013

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 of the two-year period? | A1: Yes.

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. Your parent A owned a property which was their main residence. Parent A was seriously ill for the last year of their life. You were their primary care co-ordinator during this time. More than two years ago your spouse's parent passed away and it was a very difficult time for your spouse. Approximately 18 months ago parent A passed away. You were listed as the primary executor in their will. Your sibling lives in a country town, works full-time and was struggling to cope emotionally. Approximately four months later your spouse passed away as a result of an unexpected medical condition. You slipped into shock and depression. You were the executor for your spouse's estate. You have a medical condition which affects you physically. Last year you decided to take a break from work to expedite the de-cluttering of parent A's home. Early this year your parent B passed away. Your emotional state has been further deeply impacted. You and your sibling are the executors of parent B's estate. Your parent A's property will be put on the property market in due course. You have requested an extension of time of six months until later this year to dispose of parent A's property.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-130(3) | Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1997 subsection 118-195(1)

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. A capital gain or capital loss is disregarded under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) where a capital gains tax (CGT) event happens to a dwelling if it passed to you as an individual beneficiary of a deceased estate or you owned it as the trustee of the deceased estate. The availability of the exemption is dependant upon: · who occupied the dwelling after the date of the deceased's death, or · whether the dwelling was disposed of within two years of the date of the deceased's death. For a dwelling acquired by the deceased, you will be entitled to a full exemption if: · the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of the following relevant individuals: · the spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased) · an individual who had a right to occupy the dwelling under the deceased's will, or · an individual beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary, or · your ownership interest ends within two years of the deceased's death. In your case, when your parent died, the property passed to you. The property was parent A's main residence prior to death, and at that time, was not being used to produce assessable income. However, the property was not occupied by a relevant individual after parent A's death and therefore this basis of exemption is not available. Subsection 118-130(3) of the ITAA 1997 provides that where the sale or other disposal of the dwelling proceeds under a contract, the ownership interest ends at the time of settlement of the contract of sale and not at the time of entering the contract. The property sale will settle more than two years after the deceased's death, therefore, the alternative basis of exemption is also not satisfied. However, subsection 118-195(1) of the ITAA 1997 confers on the Commissioner discretion to extend the two year exemption period, thus this alternative basis of exemption in the provision may apply. The following is a 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. The delay in disposing of parent A's property has been caused by your medical condition and a number of unfortunate family deaths which has affected your ability to deal with emotionally and physically. 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 until 3 November 2014.