Private ruling: Commissioner's discretion on dwelling acquired from a deceased estate
Published: July 2014
Ruling period: June 20XX to June 20ZZ
Date scheme commenced: On or after 1 June 20XX

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two year time period requirement to dispose of a dwelling acquired from a deceased estate? | A1: Yes

Relevant facts and circumstances: The deceased died in 20XX and did not leave a valid Will. Approximately 2 years later, the administrator of the deceased estate was appointed. One of the assets of the deceased estate which needs to be sold is the deceased's main residence (the property). The property was purchased pre-CGT and the title is registered in the names of the deceased and the partner as joint tenants. They divorced post-CGT, and as part of the property settlement, it was agreed that the property would become solely owned by the deceased and would be transferred under the deceased's sole name. The property was the main residence of the deceased from the date of purchase until death. During the course of the administration, it was discovered that the title to the property was not transferred in the sole name of the deceased. The administrator has instructed its lawyers to apply to the courts for an order that the title of the property be transferred to the deceased's sole name pursuant to the matrimonial property settlement agreed between the parties previously. After the title to the property has been transferred to the deceased's sole name, the administrator of the deceased estate will be registered on the title of the property as the administrator of the estate and will be able to sell the property as part of the estate administration. At the time of the private ruling application, the administrator of the deceased estate expected the property to be disposed of one year after the two year time period requirement to dispose of a dwelling acquired from a deceased estate in order for the disposal to be exempt from capital gains tax (CGT).

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

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 provides a full CGT exemption for capital gains and capital losses made by a beneficiary or a trustee of a deceased estate from one of the specified CGT events in relation to a dwelling or the taxpayer's ownership interest in the dwelling. The exemption only applies if certain conditions are satisfied. A full exemption is available if at least one of the items in column 2 and at least one of the items in column 3 of the table in subsection 118-195(1) of the ITAA 1997 are satisfied. | Detailed Reasoning - And also one of these items: 1 the deceased acquired the ownership interest 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 your ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner 2 the deceased acquired the ownership interest before 20 September 1985 the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of: a) the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or b) an individual who had a right to occupy the dwelling under the deceased's will; or c) if the CGT event was brought about by the individual to whom the ownership interest passed as a beneficiary- that individual. In your case both the items in column 2 apply because the deceased owned part of the property since before 20 September 1985 and part of the property since after 19 September 1985, and the property has always been the deceased's main residence. However, only the first item in column 3 applies, as the beneficiary did not occupy the property as their main residence since the death of the deceased. Therefore, a full exemption is available if the deceased ownership interest ends within two years of the deceased's death, or within a longer period allowed by the Commissioner. An amendment to subsection 118-195(1) of the ITAA 1997, in Tax Laws Amendment (2011 Measures No.9) Act 2012, gave the Commissioner a discretion to extend the two year time period in relation to CGT events happening to a dwelling that is an asset of a deceased estate. The Explanatory Memorandum to Tax Laws Amendment (2011 Measures No.9) Act 2012 provides examples of some of the situations in which the Commissioner would be expected to exercise the discretion, one of which is when the complexity of a deceased estate delays the completion of administration of the estate. The deceased did not have a valid Will and the administrator of the deceased estate needs to apply to the courts for the property to be transferred to the deceased's sole name pursuant to the matrimonial property settlement agreed between the parties previously to enable the administrator to sell the property. Hence, the Commissioner considers the deceased estate to have complexities that result in the property not being able to be disposed of within two years of the deceased's death. Therefore, the Commissioner will exercise his discretion under subsection 118-195(1) of the ITAA 1997 to extend the two year time period requirement to dispose of a dwelling acquired from a deceased estate to enable the administrator to dispose of the property one year after the two year time period requirement to dispose of a dwelling acquired from a deceased estate is due.