Private ruling: CGT-extension of time
Date of advice: 4 April 2018
Published: June 2018
Ruling period: Year ending 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Will the Commissioner exercise his discretion to extend the 2 year period under section 118-195 of the Income Tax Assessment Act 1997 for a property? | A1: Yes

Relevant facts and circumstances: The deceased died in the 2016 income year. The property was purchased by the deceased in the 1990’s. The property was the deceased’s main residence for the whole of their ownership period. Settlement of the property took place in the 2018 income year. The delay of the sale of the property was due to the deceased’s minor child being allowed to live in the property as per the provisions of the will after their death until they turned 18 years of age The property was placed on the market as soon as the child vacated the property.

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 are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it 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 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). 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: ● 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 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 your case there was a delay in selling the property due to the will making provision for a minor child to be able to remain in the property until they turned 18. As soon as the child turned 18 they moved out of the property and the property was placed on the market and was sold. The Commissioner will exercise his discretion to extend the 2 year time limit to the settlement date as the circumstances relating to the delay in the sale of the property was beyond the estates control. Accordingly, the sale of the property will be exempt from CGT pursuant to section 118-195 of the ITAA 1997.