Private ruling: Capital gains tax - deceased estate - extension of two year period - disposal
Published: November 2013

Ruling: Q1: 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 to the two year period? | A1: Yes.


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).

Reasons for decision: Summary: 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: - the spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased) - an individual who had a right to occupy the dwelling under the deceased's will, or - 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 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 settled 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 the purchaser's financial arrangements, and these delays prevented you from disposing of the property within the two year time limit, by a number of days. In determining whether or not to grant an extension the Commissioner is also 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 your circumstances, we consider the rental period was reasonable and that you held the property for a reasonable period of time given you exceeded the two year time limit by a number of days. 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.

Your parents passed away after 20 September 1985 | The deceased main residence was located in Australia. The deceased acquired this property prior to 20 September 1985. | The deceased both moved into an aged care facility in the 2004 income year. | The deceased main residence was used to produce assessable income from this period until the property was put on the market. | You are a beneficiary of your late parent's estate. | You placed the property on the market and accepted an offer within 2 years of the date of the deceased. | The purchasers requested a delayed settlement as they had difficulties in obtaining finance. | You have been unable to dispose of the property due to the purchaser experiencing delays in obtaining finance to purchase the property. | The property settled on 21 October 2013, which is more than 2 years after the death of the deceased. | The sale of the property has resulted in a capital gain.