Private ruling: Capital gains tax – deceased estate main residence discretion
Date of advice: 13 February 2019
Published: May 2019
Ruling period: For the year ending 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Will the Commissioner apply his discretion and allow an extension to the two year period under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) for the property? | A1: No

Relevant facts and circumstances: The property was acquired by the deceased and their spouse as joint tenants prior to 20 September 1985. It was their main residence for the entire ownership period. The property was never used for income producing purposes. The deceased’s spouse died and the deceased assumed the property as surviving proprietor. The deceased lived in the property until they moved into an aged care facility. The property remained vacant after this time and continued to be treated as the deceased’s main residence for CGT purposes. The property was bequeathed to X, who was also the executor of the Will. The property did not pass to X but was held by X as the legal personal representative. The house, although in a dilapidated state, was capable of still being used a residence. The Executor took steps to maximise the opportunity for sale of the property by securing a demolition permit for the cottage. Settlement for the disposal of the property occurred more than two years after the deceased’s death.

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

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 states that if you own a dwelling in your capacity as trustee of a deceased estate (or it 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 ● deceased acquired dwelling after 20 September 1985 and it was their main residence just prior to death; and ● your ownership interest ends within two years of the deceased’s death (the Commissioner has discretion to extend this period in certain circumstances). You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed). In this case, the property was purchased by the deceased before 20 September 1985 but was not sold within two years of the deceased’s date of death. The Estate will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the two 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. The disposal of the property was not as a result of factors outside the Executor’s control but was as a result of the actions and choices of the Executor and the beneficiary made to postpone the sale of the property until the demolition permit was issued to maximise the opportunity for sale of the property. These types of circumstances are not of a nature that would be acceptable for the exercising of the Commissioner’s discretion as being outside of the control of the beneficiary or Executors as noted above. Further, there is no information to indicate there has been a challenge to the Will, the estate was of a complex nature and that there were unforeseen or serious personal circumstances preventing the sale of the property. Having considered the relevant facts, the Commissioner will not apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit as the facts of this situation are not of a nature that would be acceptable for the exercising of the Commissioner’s discretion.