Private ruling: capital gains tax - deceased estate - Commissioner's discretion to extend the two-year period - main residence exemption
Published: January 2014
Ruling period: During income year 2013-2014
Date scheme commenced: 1 July 2013

Ruling: Q1:  | A1: 

Relevant facts and circumstances: Late last year you requested a private ruling for the Commissioner to exercise his discretion to extend the two-year period on the disposal of the deceased's main residence. A private ruling was issued allowing an extension to the two-year time limit until a specified date. Shortly after the issue of the private ruling your settlement agent at the time advised you to find another agent to complete settlement. The settlement agent had not acted in a timely manner as required under the Settlement Agents Act 1981, as they had not undertaken any action to finalise the disposal of the property. Due to your settlement agent not performing their duties the timeline became critical to finalise the disposal of the property by the previous extension of time date granted by the Commissioner. You have engaged another settlement agent. On a specified date your settlement agent lodged documents with the appropriate state government department as required. Your bank is ready to book settlement as all documentation has been completed. Your settlement agent did request an urgent assessment from the relevant state government department. Settlement on the disposal of the property will occur prior to a specified date.

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). | Settlement Agents Act 1981

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. A capital gain or capital loss is disregarded under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) where a 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 dependant 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: o the spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased) o an individual who had a right to occupy the dwelling under the deceased's will, or o 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 will settle 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 (e.g. 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. The delay in disposing of the property was caused by your settlement agent not undertaking any action to complete settlement and then on a specified date they advised you to find another agent to complete the settlement on your behalf. Settlement will occur prior to a specified date. 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 two-year time limit until a specified date.

Subject: capital gains tax - deceased estate - Commissioner's discretion to extend the two-year period - main residence exemption: Question: Will the Commissioner exercise discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time of the two-year period?