Private ruling: CGT - deceased estate
Date of advice: 23 November 2016
Published: April 2017
Ruling period: Year ending 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) to allow an extension of time to dispose of your ownership interest in the property acquired through a deceased estate? | A1: Yes.

Relevant facts and circumstances: You are one of two beneficiary of a deceased estate. One of the assets of the deceased estate was the deceased's main residence. The property was acquired by the deceased after 20 September 1985 and was the deceased's main residence up until the time of their death. They were the sole owner of the property. The property has never been used for the purpose of producing assessable income at any time during the deceased's ownership. Probate was granted in 20XX and the property was then transferred into the beneficiaries' names on an equal basis. You did not wish to part with the property, so you approached the other beneficiary to buy out their ownership interest. They accepted and it was agreed that you would fund the purchase of their share via proceeds from the sale of a unit you were building, which was due to be sold in early 20XX. The sale of this unit did not proceed as planned. You thought this matter could be resolved and the purchases of the other beneficiary's share still proceed. However, they have had to take legal action and the matter is still waiting to be heard. These issued caused you to fall into some financial difficulty and in order to assist with this the property was rented out to a third party. Your share of the rental income has been returned in your tax return. You also tried to secure additional funding, so that you could proceed with the purchase, but you were unsuccessful. It was decided that due to the ongoing legal issues and your inability to obtain alternate funding to complete the purchase. The property would need to be placed on the market and sold to a third party A real estate agent was engaged and they actively marketed the property for sale. The property was contacted for sale and settlement has occurred.

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

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 allows a trustee 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). 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 (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. 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.