Private ruling: Capital gains tax - deceased estate - Commissioner's discretion
Date of advice: 23 September 2015
Published: September 2015
Ruling period: Year ended 1 July 20XX.
Date scheme commenced: 1 July 20YY.

Ruling: Q1: Will the Commissioner exercise his 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 until early April 20XX to dispose of an interest in a property received from the estate of 'A'? | A1: Yes. | Q2: Will the Commissioner exercise his 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 until early April 20XX to dispose of an interest in a property received from the estate of 'B'? | A2: Yes.

Relevant facts and circumstances: The deceased acquired a dwelling (dwelling) prior to 19 September 1985. The deceased passed away after a period of time. The deceased had a number children 'A', 'B', 'C', 'D', 'E' and you. Probate was granted after a period of time. You moved overseas and resided there for a number of years. You had limited contact with from your family except for holidays. You were excluded from your family's business affairs until the hospitalisations of your two siblings, 'D' and 'E' in 20YY. It was not until this time that you became aware of your interests in the dwelling that you inherited from your parent and siblings. Your siblings have all predeceased you, some intestate and some with valid wills. Your siblings and parent all resided in the dwelling during their lifetimes. You have engaged legal representatives who have assisted you in finalising the various legal complications encountered in administering the various estates including that your parent; sibling 'A' and sibling 'B' estates had not been administered. You were granted letters of administration in relation to your three siblings' estates and to administer each of the five family member's estates.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 subsection 118-130(3) | Income Tax Assessment Act 1997 section 118-195 Explanatory memorandum to the Taxation Laws Amendment Bill (No.9) of 2011 (Cth)

Reasons for decision: Summary: A capital gain or capital loss may be 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 and a beneficiary of a deceased estate or you owned it as the trustee of the deceased estate. For a dwelling acquired by the deceased prior to 20 September 1985, 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 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 the CGT event was brought about by that person, or • your ownership interest ends within two years of the deceased's death. In your case, when the deceased died, an interest in the dwelling passed to you. The dwelling was the deceased's main residence prior to death, and at that time, was not being used to produce assessable income. However, the dwelling 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 dwelling 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. 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. In your case, the delay in disposing of the dwelling was due to the complexity of the estate. This delay will prevent you from disposing of the dwelling within the two year time limit. 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 will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit until early April 20XX.