Private ruling: CGT - deceased estate
Date of advice: 20 September 2021
Published: November 2021
Ruling period: Year ended 30 June 2021
Date scheme commenced: 1 July 2018

Ruling: Q1: Will the Commissioner allow and extension of time to 14 May 2021 for you to dispose of your ownership interest in a residential property and disregard the capital gain you make on disposal? | A1: No

Relevant facts and circumstances: The deceased died in late 20XX. The property reverted to the deceased as a result of a divorce settlement in 19XX with the certificate of title issued shortly afterwards. The property was used as the main residence of the deceased until death. After death the property was occupied by her child who paid rent until recently. There were several significant issues to be overcome before the property could be offered for sale. Initially the family investigated a sub-division of the property however this proved difficult to arrange during a period of Covid restrictions as the beneficiaries lived in different local government areas which considerably restricted travel and communications. The family investigated sub-division of the property as one child had a very strong attachment to the property and was believed to be in a fragile emotional state as a result of the death of the deceased. There was concern that selling the property may have had a detrimental effect on that child's health. Accordingly, the possibility of a sub-division was investigated as this would allow the child to remain living in the property. Covid restrictions also imposed substantial delays with consultants and contractors involved in the sub-division project as some businesses reduced their services and some became uncontactable. The local council also took longer than anticipated to process applications and were difficult to contact, again due to Covid restrictions. The sub-division project then discovered a part of the property had been contaminated with asbestos and a remediation program then became necessary. The costs involved in the asbestos remediation and the difficulty in locating suitable contractors to remediate the land became a prohibitive factor. Accordingly, the family elected to sell the property as a whole parcel without proceeding to a sub-division. These issues caused delays in listing the property for sale despite timely and effective action by the trustees. The estate then listed the property for sale in early 20YY. A contract of sale was signed shortly after and settlement occurred in mid 20YY.

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

Reasons for decision: Summary: A capital gain or capital loss is made as a result of a capital gains tax (CGT) event happening to a CGT asset (section 102 - 20 of the Income Tax Assessment Act 1997 (ITAA 1997)). The most common CGT event is CGT event A1 the disposal of a CGT asset. Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that if you owned a dwelling as the 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 on or after 20 September 1985 if: the dwelling was, from the deceased's death until your ownership interestends, the main residence of one or more of: (a) the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or (b) an individual who had a right to occupy the dwellingunder the deceased's will; or (c) if the CGT event was brought about by the individual to whom the ownership interest passed as a beneficiary--that individual 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). The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion to extend the time period in which you can dispose of the property: In determining whether to grant an extension the Commissioner is expected to consider whether, and to what extent, the dwelling was used to produce assessable income and how long the trustee or beneficiary held it. None of the factors that would normally justify an extension of the time period to dispose of a deceased estate property are present in this matter. In this case there was a delay from the date of death to the settlement of the property in mid 20YY. The delay was predominantly due to the decision by the trustees to investigate the possibility of a subdivision and subsequent issues that flowed from that decision. This choice was not a circumstance beyond the control of the trustees. None of the other circumstances that would justify an extension are present. As these delays were not caused by circumstances outside the Executor's control, the Commissioner will therefore not exercise his discretion to extend the 2-year time limit to the settlement date. Accordingly, the sale will not be exempt from CGT pursuant to section 118-195 of the ITAA 1997.

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 (for example, 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 circumstances outside the beneficiary or trustee's control.