Private ruling: CGT - deceased estate - main residence - extension of time
Published: October 2014
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

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 to the two year period to the date you requested? | A1: Yes. | Q2: Can you disregard any capital gain or loss that arises from the disposal of the property under section 118-195 of the ITAA 1997? | A2: Yes.

Relevant facts and circumstances: The deceased acquired a pre-CGT property, which was their main residence and never used for income producing purposes. The deceased passed away. You are the executor of the deceased's estate. You approached real estate agents shortly after the deceased passed away to sell the property, and found the sale process would be quite complex and involve a developer. The property was zoned as a Higher Density Residential Zone, which allowed units. You were given a number of valuations and sale approaches, which differed significantly from the real estate agents you spoke with. You sought to find out as much information as to the number of units that could be built on the property and an accurate sales figure, so as to act in the best interests of the beneficiaries. On several occasions, you approached a Council officer who dealt with development applications. You also saw a draftsman who was employed by developers. You were not prepared to consider the developer's preferred negotiating pathway, which were options for 12 months with a X% deposit, although it was backed by agents. During the two year period, for a period of two months, the Council held public exhibition proposals for a new development control plan (DCP) and a new local environmental plan (LEP), which changed the zoning on the property to a Higher Density Unit Development. The proposed zoning increased the number of units that could be built on the property, but impacted the developer with other costly requirements. Amended draft LEPs and DCPs were publicly exhibited twice more over a period of twelve months, which caused passed the two year period. The LEP and DCP plans were gazetted on almost two and a half years after the original proposals. Developers had been waiting until the final outcomes of these plans were announced before taking any action on purchasing the property. Shortly after the plans were gazetted, you held an auction for the property however you only received one starting bid. Following the auction, you began negotiations with two interested developers. You had contracts drawn up with one of the developers, with a proposed three month settlement period. This sale fell through, due to issues on the developer's side. Most developers required an extended settlement period. You were able to sell the property to the other developer, with an extended settlement period. Settlement on the sale of the property occurred almost a year later.

Relevant legislative provisions: Income Tax Assessment Act 1997 (ITAA 1997) section 118-195

Reasons for decision: Summary: As per subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling or your ownership interest in it is disregarded if: (a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and (b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied. | Detailed Reasoning - And also one of these items: 1 the deceased *acquired the *ownership interest 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 your *ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner ........... 2 the deceased *acquired the *ownership interest before 20 September 1985 the *dwelling was, from the deceased's death until your *ownership interest ends, the main residence of one or more of: (a) the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or (b) an individual who had a right to occupy the dwelling under the deceased's will; or (c) if the *CGT event was brought about by the individual to whom the *ownership interest *passed as a beneficiary - that individual In this case, when the deceased died the property passed to the legal personal representative. The property was not used to produce assessable income and it was their main residence just before their death. You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period in which you can choose to dispose of the property. 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 (eg 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 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 the beneficiary held it. In your case, the delay in the sale of the property was impacted by the limited interest of developer's in the property as a result of prolonged uncertainty of Council development plans, and is considered outside of your control. You sought to sell the property as soon as practicable, following the finalisation these plans. Following a falling through of a sale opportunity, you were able to sell the property to another interested party, with settlement occurring almost a year later. Although you sought a shorter settlement period, this was not possible as most developers were not interested in a shorter period. Accordingly, 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 to the date you requested. As a result of extending the two year time limit, you will satisfy all of the conditions contained in section 118-195 of the ITAA. Therefore, you can disregard any capital gain or loss that arises as a result of the disposal of the property.