Private ruling: CGT - deceased estate
Date of advice: 11 February 2016
Published: April 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Is the portion of the capital gain which relates to your ownership interest in the property acquired through your deceased relatives estate, be disregarded under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Will the Commissioner exercise his discretion under subsection 118-195(1) of the ITAA 1997 to allow an extension of time to dispose of your ownership interest in the property acquired through your deceased parent's estate? | A2: Yes.

Relevant facts and circumstances: A family member purchased a property after 20 September 1985. It was their main residence until their death. The property had never been used to produce assessable income during their ownership period. This family member sold a half-share (50% interest) in the property to another family member. They held their interest in the property as 'tenants in common'. Both parties held a Will. The first family member passed away and you and your sibling inherited their share in the dwelling. The other family member continued to live at the property and treated the dwelling as their main residence. They moved into a nursing home several years prior to their passing. As they held no other property, they continued to treat the dwelling as their main residence. The property was rented out prior to their death for a period of less than six years. The second family member's share in the dwelling was transferred to you and your sibling and the property was placed on the market. Within a short period of time the contract of sale was accepted and it settled in the same financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-195 | Income Tax Assessment Act 1997 Subsection 118-195(1) | Income Tax Assessment Act 1997 Section 118-145 | Income Tax Assessment Act 1997 Section 118-190 | Income Tax Assessment Act 1997 Subsection 118-190(4)

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 allows a beneficiary of a deceased estate to disregard a capital gain or loss from a dwelling if: • the property was acquired by the deceased before 20 September 1985, or • the property was acquired by the deceased 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 • your ownership interest ends within 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances). Section 118-145 of the ITAA 1997 allows you to choose to treat a dwelling as your main residence even though you no longer live in it. If you use the property to produce assessable income, you can choose to treat it as your main residence for up to six years after you stop living in it. Section 118-190 of the ITAA 1997 provides that if you acquire an ownership interest in a dwelling as the trustee or beneficiary of a deceased estate, you ignore any income producing use of the property before the deceased's death if the choice had been made under section 118-145 of the ITAA. In this case, when the second family member died the property passed to their legal representative. As they did not own any other properties, the choice is available under section 118-145 of the ITAA 1997 to enable the property to be treated as the deceased's main residence just before their death. Although the property was used to produce assessable income just prior to their death, this use is disregarded under subsection 118-190(4) of the ITAA 1997. Therefore, there will be no CGT consequences in relation to the portion of the capital gain which relates to your ownership interest in the property acquired through the second family member's deceased estate, as you disposed of your ownership interest in the dwelling within two years of their passing. However, you will only be able to disregard the portion of the capital gain which relates to your ownership interest in the property acquired through the first family member's deceased estate if the Commissioner extends the time period in which you can dispose of the property. 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. In this case, the second family member had a 50% ownership interest in the dwelling and it was their main residence up until their death. It was not within your control to dispose of the dwelling within a two year period after first family member's death due to this arrangement. However, the dwelling was disposed of in a timely manner once it was in your control to do so. Having considered the particular circumstances of this case, the Commissioner will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit to when the property was sold.