Private ruling: Capital gains tax - deceased estate - Commissioners discretion
Published: March 2014

Ruling: The deceased acquired a property. | The property was the deceased main residence and it included a hobby farm. | The deceased passed away nearly X years ago. | The deceased died intestate. | The deceased left a number of siblings. | All siblings reside in one state and not in the state the deceased resided in. | A sibling was elected as administrator and a legal practitioner registered and practicing in the relevant state as attorney for and on behalf of the deceased estate. | The granting of the Letters of Administration was granted the following year. | The property was placed on the property market approximately two months later. | The property was first appointed to a real estate agent (agent A) and it was initially listed for a specified amount, being a price established with input from the selling agent. | An extension of appointment was granted to agent A on a specified date, for a reduced price of a specified amount. The term of this exclusive agency expired on a specified date. | Agent A secured an offer on the property for a specified amount including various items of retired/unused plant and equipment owned by the deceased and stored on the property. | This offer was accepted but was conditional on the buyer performing due diligence within 14 days. The offer was withdrawn by the buyer. | A new selling agent was selected by the administrator - agent B on a specified date for a specified amount. | Approximately X months later an offer was received for the property of a specified amount, which was considered far too low, subject to finance and was not accepted. | A concern to the administrator and their attorney was the fact that the sale value was far less than they and other siblings had contemplated from the selling agents' advice. | An offer at that large a discount could not be accepted without first conducting a valuation and considering the matter as a group. | A market valuation was commissioned and completed the following month, determining a market value of a specified amount. | Two months later, a Deed of Indemnity was entered in by the beneficiaries, administrator and attorney agreed to accept the offer made if it was still available. If the offer was not available any comparable or better offer in the absolute discretion of the administrator and his attorney. | The offer was no longer available. | Approximately two years ago, another selling real estate agent (agent C) was appointed on a non-exclusive basis for a term expiring on specified date. The price was reduced to a specified amount. | Agent C was successful in obtaining an offer for the property for a specified amount, which was accepted. | The offer failed to proceed due to finance approval not being granted. | X months later agent B presented an offer of a specified amount - cash and this offer was accepted. | Settlement on the disposal of the property occurred on a specified date. | You have provided a copy of documentation to support your application and this documentation is to be read with and forms part of your application for the purposes of this ruling.


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: A capital gain or capital loss is disregarded under section 118-195 of the 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 dependent 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 the deceased died, the property passed to you. The property was the deceased'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 the deceased'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 settled 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 (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 reasons outside the beneficiary or trustee's control. We have noted that you received and accepted a number of offers on the disposal of the property but a binding contract for the sale of the property was not entered into by you with the purchaser. The disposal of property was not unexpectedly delayed or fell through outside your control due to an unexpected delay or a contract for sale falling through. In determining whether or not to grant an extension the Commissioner is also expected to consider whether and to what extent the dwelling is used to produce assessable income and how long the trustee or beneficiary held it. Having considered the relevant facts, the Commissioner is not able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit. The normal CGT rules will apply to the disposal of the property. | Detailed Reasoning - CGT: The most common CGT event, CGT event A1, occurs when you dispose of an asset to another entity. The time of the event is when you enter into the contract for disposal of it, or if there is not contract when the change of ownership occurs. If two or more people acquire a property asset together it can be either tenants in common or as joint tenants. If a tenant in common dies, their interest in the property is an asset of their deceased estate. This means it can be transferred only to a beneficiary of the estate to be disposed of (or otherwise dealt with) by the trustee/s of the estate. | Detailed Reasoning - Deceased estate - main residence: Special rules apply to the asset that was a deceased person's main residence. If you inherit a deceased person's dwelling, you may be exempt or partially exempt when a CGT event occurs to it. Information on how CGT applies is available on our website - www.ato.gov.au.