Private ruling: CGT - extensions to the 2-year ownership period
Date of advice: 1 September 2022
Published: November 2022
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the 2-year capital gains tax (CGT) exemption to dispose of the property? | A1: No.

Relevant facts and circumstances: The deceased passed away on DD MM YYYY. The property was the deceased's main residence since 20YY. The deceased lived in the property with their spouse until their spouse died in 20YY and they continued to live in the property until their death. The decease child lived with them in the property as their live-in carer for X years prior to the deceased passing away. The deceased could not cook, clean, or get to medical appointments on their own. The deceased had a number of medical conditions. The child quit their job to care for the deceased. Probate was granted on DD MM YYYY. The property was less than 2 hectares in size. The property was never used to produce income. The property settled on DD MM YYYY. The reasons for the delay in selling the property within the 2-year time was as follows: After the deceased passed away, the executors of their estate agreed that their child could continue living in their home rent free until they were able to return to work and find a rental property to move into. In this instance, the executors did not want to place undue pressure and burden on their sibling who had selflessly cared for their parent for X years to immediately move out of the property upon the deceased's death. The executors felt it was unethical to evict them from the property in order to meet the 2 year ownership period CGT exemption. The child secured affordable rental accommodation in DD MM YYYY. The executors then prepared the house for sale, including essential structural repairs. Delays within the construction industry due to COVID meant that materials and tradespeople were extremely difficult to secure, therefore further delaying the sale of the property. The house was placed on the market in DD MM YYYY, and subsequently a contract for sale was signed on DD MM YYYY. The property was never used to generate income.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-195

Reasons for decision: Summary: The main residence exemption in section 118-110 of the ITAA 1997 applies to disregard a capital gain or capital loss a taxpayer makes from a capital gains tax (CGT) event that happens to a dwelling that is their main residence. If a taxpayer inherits an ownership interest, subsection 118-195(1) of the ITAA 1997 applies so that any capital gain or capital loss they make from a CGT event that happens in relation to a dwelling or their ownership interest in a dwelling is disregarded if: • They are an individual and the interest passed to them as a beneficiary in a deceased estate, or they owned it as the trustee of a deceased estate; and • The deceased acquired the ownership interest 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 • Their ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example: • 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 2-year period (for example, the taxpayer or a family member has a severe illness or injury). • Settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control. Factors that would weigh against the granting of the discretion include: • Waiting for the property market to pick up before selling the dwelling. • Property used to earn assessable income. • Unexplained periods of inactivity by the executor in attending to the administration of the estate. The above examples are not exhaustive. In addition, once any circumstances preventing the sale of the Property have been resolved, the Property needs to be placed on the market as soon as possible to enable its disposal. | Detailed Reasoning - Application to your situation: The delay in selling the property was due to the executors of the estate allowing the child to remain in the property after the deceased's death. The child did not have a right to live in the property under the will and this was a decision made by the executors. Once the child moved out of the property work was then carried out on the property which was delayed by covid. We consider the delay in disposing of the Property was predominantly due to the executors allowing the child to remain in the property and delaying the sale of the property to allow them time to find alternative accommodation. In this regard, we consider that the delay was not outside your control. It is for the above reasons that you do not meet the requirements for the Commissioner to extend the 2-year time period as the property could have been sold at an earlier stage. The Commissioner will not be exercising his discretion to extend the 2-year period for you to dispose of the Property. Therefore, any capital gain made on the property from the date the deceased passed away until the Property was disposed of will be subject to tax. You are also entitled to the 50% CGT discount in relation to the Property.