Private ruling: Capital gains tax - deceased estate
Published: December 2014
Ruling period: Year ending 30 June 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 to the two year period? | A1: Yes | Q2: Will the capital gain made on the disposal of the property be disregarded? | A2: Yes

Relevant facts and circumstances: X purchased the property. The deceased lived at the property with X. Their relationship ended. Orders were made ordering that the property be transferred to the deceased. However this transfer did not take place. X had moved out of the property; however the deceased continued to live there until the time of their death. The property was not used to produce assessable income. Solicitors prepared a transfer of the property to the deceased's estate so as to give effect to the previous orders made following the relationship breakdown. X signed this transfer but then disputed that the estate had any interest in the property. X lodged a caveat shortly after the deceased's death claiming an interest in the property. Protracted litigation ensued. The litigation was then settled and orders were made requiring X to remove the caveat on the property and transfer the property to the deceased's estate to give effect to the original orders that were made following the relationship breakdown. Steps were then taken to place the property on the market. The sale of the property settled during the relevant financial year.

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

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 allows a trustee of a deceased estate to disregard a capital gain or loss from a dwelling that a deceased person acquired after 20 September 1985 if: • the property was acquired by the deceased before 20 September 1985, or • the property was acquired by the deceased 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, and • your ownership interest ends within 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances). 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 this case, while the deceased did not have legal title of the property at the time of their death, as a result of the orders made we consider that they were the beneficial owner of the property at that time and the property became an asset of the deceased's estate following their death. After the time of death, the ownership of the property was disputed. Having considered the particular circumstances of this case, the Commissioner will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit. Accordingly, the capital gain from the disposal of the property will be disregarded under section 118-195 of the ITAA 1997.