Private ruling: Capital gains tax for a deceased estate
Date of advice: 21 November 2016
Published: March 2017
Ruling period: Year ending 30 June 20XX | 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') in relation to the property and allow an extension of time until 20XX? | A1: Yes.

Relevant facts and circumstances: The deceased passed away in 20XX. The deceased left Australia in 20XX. The deceased was living overseas and was not an Australian resident for tax purposes at the time they passed away. The deceased purchased their main residence ('the property') in 19XX. The deceased continued to maintain the property while overseas and continued to consider it as their main residence. The property was not used to produce income. The deceased's child, B, commenced residing in the property prior to the deceased's date of death. B continues to reside in the property. B is a beneficiary of the estate. Assets of the deceased's estate are inside and outside of Australia. The property forms part of the deceased's estate. The deceased's will was challenged by a family member. Probate was granted in 20XX.

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

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. The deceased continued to consider the property their main residence until they passed away in 20XX. The property will not be 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 In your circumstance, the will of the deceased has been challenged. Further, locating and realising assets outside of Australia has increased the complexity of administering the estate. Having considered the circumstances and the factors outlined above, the Commissioner is able to apply his discretion and allow an extension of time until 20XX.