Private ruling: Capital gains tax
Published: September 2013
Ruling period: Year ending 30 June 2012 | Year ending 30 June 2013
Date scheme commenced: 1 July 2011

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? | A1: Yes.

Relevant facts and circumstances: The deceased passed away in 199X. The deceased built and moved into their main residence in 197X. The deceased's will named the deceased's children as the executors and beneficiaries to the estate. The deceased's main residence was left as part of the estate. The property was transferred into the beneficiaries' names. The deceased left a codicil to their will which provided that the deceased's spouse has a right to reside in the property during the spouse's lifetime. The deceased's spouse resided in the property until 201X. At this time the spouse relinquished their right to the property when they moved into a nursing home. The sale of the unit was completed a few months later and has resulted in a capital gain.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-195.

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 states that if you are an individual who owns a dwelling in a capacity as trustee of a deceased 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 on or after 20 September 1985 and the property 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; or the property was acquired by the deceased before 20 September 1985; and · your ownership interest ends within two years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances). In your case the deceased acquired the property in 197X. The deceased passed away in 199X, and the property was not sold until 201X. The property was sold outside the two year period outlined in subsection 118-195(1) of the ITAA 1997. Therefore, you will only be able to disregard the capital gain from the sale of the property if the Commissioner grants an extension to the two year time limit. 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 case, the deceased lived in the property until they passed away in 199X. A codicil to the will was presented by the deceased's spouse which, provided that they were entitled to reside in the property during their lifetime. The deceased's spouse did not vacate the property until 201X. The delay in the disposal of the property was caused by this codicil preventing the beneficiaries from being able to dispose of the property until it was vacated. The property settled a few months later in 201X. 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. Accordingly, you can disregard the capital gain that arose as a result of the disposal of the property.