Private ruling: CGT - Main residence and extension of two year rule
Published: March 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Will the Commissioner exercise his 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 to year ended 30 June 2012? | A1: No.

Relevant facts and circumstances: The deceased died in the relevant year. The deceased's relative inherited the house. The property was valued at $XX at the date of acquisition by the deceased's relative. The deceased acquired the property prior to 20 September 1985. The property had not been used to produce assessable income since the deceased's death. The deceased's relative contacted local real estate agents to list the property for sale when the deceased's estate had been finalised. The deceased's relative was approached by a developer's agents, who made an offer to purchase the property. The deceased's relative was approached by the deceased's neighbours' family member who expressed an interest in purchasing the property at the same price the developer's agents had offered. The deceased's relative agreed to give the deceased's neighbours' family member time to obtain finance to purchase the property. After some months, the deceased's relative accepted the developer's agents offer to purchase the property. Contracts on the property were exchanged in year ended 30 June 20XX. Settlement occurred in year ended 30 June 20YY. The deceased's relative was not fully aware of the time restriction applying to the sale of the property.

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

Reasons for decision: Summary: As per subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling, or your ownership interest in it, is disregarded if: (a) 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; and (b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied. Beneficiary or trustee of deceased estate acquiring interest Item One of these items is satisfied And also one of these items 1 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 your *ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner ........... 2 the deceased *acquired the *ownership interest before 20 September 1985 the *dwelling was, from the deceased's death until your *ownership interest ends, 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 dwelling under 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 In this case, when the deceased died the property passed to the deceased's relative as beneficiary. The property was not used to produce assessable income following the deceased's death. 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 (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 delay was caused by the deceased's relative's allowance to provide the deceased's neighbours' family member time to obtain finance for the purchase of the property. The deceased's relative was presented with an equal offer from the developer's agents, but delayed in selling the property because he/she was not aware of the time restriction applying to the sale. The reason for the deceased's relative delay is not in accordance with a situation in which the Commissioner would be expected to exercise the discretion to extend the time period in which you could have disposed of the property. The deceased's relative was presented with an equal offer from the developer's agent and chose not to accept this offer at the time it was presented. Having considered the relevant facts, the Commissioner is unable to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.

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