Private ruling: CGT - deceased estate
Published: June 2012
Ruling period: Year ending 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Question and answer | Can you disregard any capital gain or capital loss made on the sale of the dwelling? | No.

Relevant facts and circumstances: The deceased died a number of years ago. The deceased purchased the dwelling a number of years ago and lived in it as their main residence from that time, until their death. Since the deceased's death, the dwelling has never been used for income producing purposes. The dwelling was placed on the market more than two years after the deceased died. The dwelling was on the market for a considerable time. There were difficulties and complexities arising in the context of the estate. One of the beneficiaries of the estate was a minor at the time of the deceased's death, after this time, was then able to indicate a preference whether to retain or sell the dwelling, with a decision being taken to sell the property within months of them coming of age. The eventual sale price was significantly less than the value placed on the dwelling by the government valuation. After deduction of sale costs, the net proceeds were significantly less than that of the assessed value of the dwelling.

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

Reasons for decision: Summary: Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that if you are an individual who owns a dwelling in a capacity as trustee of a deceased estate, then you are exempt from tax on any capital gain made on the disposal of the property acquired by the deceased after 20 September 1985 if: · the property was the deceased's main residence just prior to their death · it was not being used to produce assessable income at this time, and · your ownership interest ends within 2 years of the deceased's death. 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 particular case, the deceased acquired the dwelling in 200X. It was the deceased's main residence just prior to their death and it was not used to produce assessable income at this time. The trustee's ownership interest in the dwelling did not end within two years of the date of death. Therefore, any capital gain or capital loss made on disposal of this dwelling will not be fully exempt as the conditions in section 118-195 of the ITAA 1997 have not been satisfied. Whilst we acknowledge that difficulties and complexities arose in relation to the estate, and this contributed to the dwelling being sold more than two years after the deceased's death, the law does not provide the Commissioner the power to exercise a discretion to extend the two year period specified by law. Therefore, any capital gain or capital loss you made when you sold the property cannot be disregarded as the requirements of section 118-195 of the ITAA 1997 have not been met. Please note, however, that as the dwelling was the deceased's main residence prior to his death, a partial exemption from CGT is available. For more information relating to calculating CGT, please refer to our website www.ato.gov.au.

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