Private ruling: Capital gains tax
Published: March 2014
Ruling period: To a specified date.
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: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The deceased acquired a property, which was their main residence for their entire ownership period. The deceased resided there for their entire life. The deceased passed away almost two years ago. Children of the deceased, you and child A are the executors of the deceased's estate. The deceased's property was in poor condition and required urgent repair as follows: • the double garage door was in a state of collapse and was dangerous to enter • the back of the house was subject to inundation in wet weather • the property had quantities of loose and broken asbestos as part of the fabric of the building and on the land, and • the house was full of rubbish and debris including used building material. The property has remained vacant since the deceased's date of death. All decisions pertaining to the deceased's estate according to their will have been joint decisions and one executor could not act without the involvement of the other. Probate is now in the process of being made and once probate is granted in the near future the property will be disposed of. You and child A in your roles as the executors of the deceased estate will dispose of the deceased's main residence. You are seeking an extension of the two year period - main residence exemption for the following reasons: • the deceased's grandchild (grandchild A) has been suffering from a medical condition for a number of years. During this time they have been treated by a specialised unit within a hospital which involved admissions to the hospital. The last 12 months have been intense for you and the family. This was difficult whilst maintaining a full-time job • grandchild A's condition during a specified period severely restricted your ability to deal with deceased estate's matters including the necessary repairs and your ability to organise the general clean up required • grandchild A is on a slow road to recovery and their treatment is less intense now freeing up some time to give attention to the deceased estate's matters • the deceased's grandchild B has been suffering from a medical condition for a number of years. Last year grandchild B required your immediate attention, which also delayed decisions about the deceased estate. Grandchild B is currently under medical care. • child A has also experienced medical issues which has limited their capabilities to deal with the complexities of the deceased estate's matters. You anticipate that an exchange of contract will occur within a specified period. The settlement on the disposal of the property will occur prior to 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 the deceased died, an interest in the property passed to you. The property was the deceased's main residence prior to death, and at that time, was not being used to produce assessable income. However, the property was not occupied by a relevant individual after the deceased'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 settled more than two years after the deceased'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 you being unable to attend to the deceased estate due to serious personal circumstances arising during the two year period. 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.