Private ruling: Capital gains tax (CGT) – deceased estate – two year discretion
Date of advice: 21 May 2018
Published: July 2018
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the dwelling on the property and allow an extension of time until YYYY? | A1: Yes

Relevant facts and circumstances: Your parents purchased a property in which you grew up in, and it is a post CGT asset. The property was the main residence of one of your parents who passed away in 20XX. At this time your other parent acquired 100% ownership as the surviving spouse. Following your parents passing your other parent suffered from depression due to the loss, and they died of natural causes later that year. The property was your other parent’s main residence just before they died. The will appointed you (the child of the deceased) as an executor and Trustee of the estate. You had been the main carer for both of your parents prior to their passing. Due the requirement for you to care for your parent following your other parents passing, plus raise your own family, you were unable to properly grieve for the loss of your parent that died first. Following the loss of your parent that died most recently you were diagnosed with an illness following the loss of both of your parents, and you were given appropriate medication and treatment. Being the executor of your parent’s estate you were not in the right state of mind to deal with the administering of the estate for a long period after their passing, given the medical issues you were going through. The property was later placed on the market and a sale contract was obtained late in 20XX and settlement occurred early in the following year. Settlement occurred not long after the two year period from the date of death of your parent that died most recently. From the date of death of that parent until the settlement date of the property, the residence remained empty as you were in no fit state to deal with sorting out your parent’s personal effects, and it was not used for any income producing purposes.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-195

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 states that if you own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an estate), then you are exempt from tax on any capital gain made on the disposal of the property 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). 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). In this case, the property was purchased by the deceased after 20 September 1985 and was their main residence until they passed away in 20XX. The property was not sold within 2 years of the deceased’s date of death. You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the 2 year time period. The Commissioner can exercise his discretion in situations such as where: ● 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 Having considered the circumstances and the factors outlined above, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time until 20XX.