Private ruling: Deceased estate - main residence
Published: September 2013
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) in relation to the portion of the property acquired prior to 1985 and allow an extension of time to the two year period? | A1: Yes | Q2: Will the Commissioner exercise his discretion under subsection 118-195(1) of the ITAA 1997 in relation to the portion of the property acquired after 1985 and allow an extension of time to the two year period? | A2: No

Relevant facts and circumstances: You are the executor of a deceased's estate. The deceased acquired the property prior to 20 September 1985 as joint tenants with their spouse. The deceased's spouse passed after 20 September 1985 and their share of the property passed to the deceased. The deceased lived in the property as their main residence. However, just prior to the deceased's death they were a resident of an aged care facility. Following their admission to the aged care facility, the deceased did not keep any belongings at the property. The property was occupied by a family member. The property was not used to produce income. The deceased did not have an ownership interest in any other residential property. The trustee of the deceased's estate does not wish to make the choice to continue to treat the property as the deceased's main residence for the period they resided in the aged care facility. Following the deceased's death, the deceased's family member continued to occupy the property. The property has not been used to produce assessable income since the deceased's death. While the current occupant of the property is entitled to a share of the property, they did not have a right to occupy the property under the will; they lived there as a result of a private agreement between the other beneficiaries. Probate has been granted. However, the deceased's estate included assets in another country. You have made continuing efforts to determine the assets of the estate in this country. You anticipate that once the issues surrounding the estate's assets in another country are finalised, you will need to have Probate resealed. The residuary beneficiaries of the deceased's estate intend to formalise the rearrangement of entitlements of beneficiaries by way of a deed of family arrangement. This will include the transfer of the property to the family member that currently occupies the property. Before this can be affected, you need to obtain the full value of the estate.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 108-5 | Income Tax Assessment Act 1997 Section 118-145 | Income Tax Assessment Act 1997 Subsection 118-195(1) | Income Tax Assessment Act 1997 Section 128-50

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 allows you to disregard a capital gain (or loss) made on the disposal of a property acquired from a deceased estate, if certain conditions are satisfied. The conditions relevant to your circumstances are: o the deceased acquired the ownership interest prior to 20 September 1985, or o the deceased acquired the ownership interest on or after 20 September 1985, and the dwelling was the deceased's main residence just prior to the deceased's death and was not being used to produce assessable income. If one of the above requirements is met, you will be entitled to disregard any capital gain made on the disposal of the property if your ownership interest ends within two years of the deceased's death, or within a longer period allowed by the Commissioner. For CGT purposes, if you are a joint tenant you are treated as if you are a tenant in common owning equal shares in the asset (section 108-5 of the ITAA 1997). However, if you are a joint tenant and another joint tenant dies, on that date their interest in the asset is taken to pass in equal shares to you and any other surviving joint tenants, as if their interest is an asset of their deceased estate and you are beneficiaries (section 128-50 of the ITAA 1997). In this case, the deceased had two separate interests in the property; the portion originally acquired by the deceased prior to 1985 and the portion acquired by the deceased after 1985 following the death of their spouse. | Detailed Reasoning - Portion acquired prior to 20 September 1985: Although this portion was originally acquired by the deceased prior to 1985, it has not been disposed of within two years of the deceased's death. Accordingly, you will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period in which you can dispose of the property. 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 determining whether or not to grant an extension the Commissioner is 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. In this case, the transfer of the property has been delayed due to the complexity of the estate. The property has never been used to produce assessable income. Having considered the relevant facts and the length of time under consideration, 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 in relation to the portion of the property that was acquired by the deceased prior to 20 September 1985. | Detailed Reasoning - Portion acquired after 20 September 1985: Section 118-145 of the ITAA 1997 provides that the main residence of an individual can continue to be regarded as their main residence despite the fact that they no longer live in it. If the dwelling is not used to produce income (for example, you leave it vacant, or use it as a holiday home) you can treat the dwelling as the main residence for an unlimited period. If the dwelling is used to produce income (for example, you rent it out or it is available for rent) you can choose to treat it as your main residence for up to six years after you cease living in it. You have advised that you do not wish to make this choice on behalf of the deceased for the period that they moved to the aged care facility to the time of their death. Accordingly, the property was not the main residence of the deceased just prior to their death. As this initial requirement has not been met, the Commissioner cannot consider an extension to the two year time period in relation to the portion of the property acquired by the deceased after 20 September 1985.