Private ruling: Capital gains tax - deceased estate - Commissioner's decision - two year period
Published: February 2014
Ruling period: On or after 1 January 2015.
Date scheme commenced: 1 July 2013.

Ruling: Q1: Will the Commissioner exercise 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? | A1: Yes.

Relevant facts and circumstances: After to 20 September 1985, settlement occurred on the property your parent purchased. Your parent intended to renovate and extend the property. Your parent had moved in and established the property as their main residence a couple of weeks prior to their death approximately X months ago. Your parent died intestate. Your parent had moved all their furniture into the shed on the property. Your parent and sibling had begun to renovate the property. Your parent and sibling had commenced renovations. The property is incomplete as the majority of the house is incomplete and the backyard has been cleared. You and your sibling sought assistance from a lawyer to apply for Letters of Administration. You and your sibling commenced the process of obtaining the Letters of Administration approximately two months after your parent's death. You and your sibling received the title to the property and the original Letter of Administration until a specified date. You and your sibling have another sibling. You and your sibling did not continue to renovate the property as your lawyer had advised you that there may be legal complications and you were also advised that you could not undertake any renovations at the property until you received the Letters of Administration. You and your sibling have started renovating the property using the materials your parent had purchased prior to their death. You and your sibling both have full time jobs and live approximately an X from the property so you are restricted to working on the property to weekends. You and your sibling will not be able to dispose of the property within two years of your parent's death. You and your sibling will dispose of the property by a specified date.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-130(3) | Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1997 subsection 118-195(1)

Reasons for decision: Summary: A capital gain or capital loss is disregarded under section 118-195 of the ITAA 1997 where a capital gains tax event happens to a dwelling if it passed to you as an individual beneficiary of a deceased estate or you owned it as the trustee of the deceased estate. The availability of the exemption is dependent upon: · who occupied the dwelling after the date of the deceased's death, or · whether the dwelling was disposed of within two years of the date of the deceased's death. For a dwelling acquired by the deceased, you will be entitled to a full exemption if: · the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of the following relevant individuals: - the spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased) - an individual who had a right to occupy the dwelling under the deceased's will, or - an individual beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary, or · your ownership interest ends within two years of the deceased's death. In your case, when your parent died, an interest in the property passed to you. The property was your parent's main residence prior to their death, and at that time, was not being used to produce assessable income. However, the property was not occupied by a relevant individual after your parent's death and therefore this basis of exemption is not available. Subsection 118-130(3) of the ITAA 1997 provides that where the sale or other disposal of the dwelling proceeds under a contract, the ownership interest ends at the time of settlement of the contract of sale and not at the time of entering the contract. The property sale will settle more than two years after your parent's death, therefore, the alternative basis of exemption is also not satisfied. However, subsection 118-195(1) of the ITAA 1997 confers on the Commissioner discretion to extend the two year exemption period, thus this alternative basis of exemption in the provision may apply. 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 (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 reasons outside the beneficiary or trustee's control. The delay in disposing of the property was due to the complexity of the deceased estate which delayed the completion of the administration of the estate. In determining whether or not to grant an extension the Commissioner is also 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. Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit until a specified date.