Private ruling: CGT Deceased Estate
Date of advice: 11 July 2018
Published: September 2018
Ruling period: Year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) and section 118-200(3) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time to the two year period to XX May 20XX? | A1: Yes

Relevant facts and circumstances: The deceased left a valid Will. One of the assets of the deceased estate was the deceased’s main residence, a post capital gains tax (CGT) asset. The deceased did not treat any other property as their main residence during their ownership period. The property has never been used to produce assessable income at any time during the deceased’s ownership period or since death. The deceased’s beneficiary acquired the property and expressed their intention to the executor of the estate that they will be taking transfer of the property into their name. However, they did not provide the funds to the executor to cover the outstanding testamentary expenses and to enable the property transfer as was desired. The beneficiary was given numerous notices and ample time to vacate the property by the executor of the estate. They became uncooperative and challenging to deal with, which delayed the executors from taking possession of the property and putting it on the market for sale. After numerous attempts to contact the beneficiary, the matter went to court where the order of possession of the property was issued to the executor; a warrant of possession was issued and received by the executor. The beneficiary was evicted from the property, which made it impossible for the executor to sell the property within the two year exemption period. After the beneficiary was evicted from the property, the executor immediately took possession of the property and commenced actions to market the property for sale. The property auction was delayed as there was an issue with preparation of contracts; the auction was then re-scheduled and was sold, with a 60-day settlement period. The delays caused in the settlement of the contract of the sale of the property were due to circumstances outside the executor’s control.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-195(1) | Income Tax Assessment Act 1997 section 118-200(3)

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 states that if you are an individual who owns a dwelling in a capacity as trustee of a deceased 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 on or after 20 September 1985 and the property 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; or the property was acquired by the deceased before 20 September 1985; and ● your ownership interest ends within 2 years of the deceased’s death (the Commissioner has discretion to extend this period in certain circumstances). Section 118-200(3) of the ITAA 1997 states that you can adjust the formula by ignoring any non-main residence days and total days in the period from the deceased's death until your *ownership interest ended, if: (a) the deceased *acquired the ownership interest on or after 20 September 1985; and (b) (b) your ownership interest ends within: (i) 2 years of the deceased's death; or (ii) a longer period allowed by the Commissioner; and (c) (c) you get a more favourable result by doing so. 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 Due to the delays caused by the beneficiary of settlement of the contract of sale of the deceased estate, the property was unable to be sold within two years of the deceased’s death. 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 2 year time limit. The exemption period will be extended to XX May 20XX.