Private ruling: Capital gains tax
Published: October 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Question and answer: | 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? | No.

Relevant facts and circumstances: The deceased died a number of years ago. The property was the deceased's main residence. Under the will the deceased gave their child the right to occupy the property for as long as they chose to do so. The deceased's child lived in the property for a number of years and then rented it out for a few years. The deceased's child decided to give up their right to occupy the property and sell it so the beneficiaries could get their entitlement. The property was sold.

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, the terms of the will allowed the deceased's child the right to occupy the property for as long as they wished. The deceased's child decided to leave the property to enable the property be sold and divided between the beneficiaries. The Commissioner will not exercise his discretion to extend the 2 year time limit as the terms of the will allowed the deceased's child to occupy the property for as long as they wanted to live in it. The property was used by the deceased's child and therefore was not able to be sold within the 2 year time period set down in section 118-195 of the ITAA 1997. The reason for the delay was simply the terms and conditions of the will not a reason outside of the will or external to the estate.