Private ruling: CGT - deceased estates - (2 year discretion)
Published: January 2014
Ruling period: 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Commissioner exercise his discretion to extend the 2 year period for the exemption from capital gains tax (CGT) for main residence acquired from a deceased person? | A1: Yes.

Relevant facts and circumstances: The Deceased owned a property which was their principle place of residence. The Deceased passed away in 20XX. The Deceased's last will and testament nominated Relative A as the Executor. The Estate was complex due to the Deceased's significant holding of their own artwork. The property has not been rented since the deceased passed away. At the time of the deceased's death, Relative A had successfully been treated for an illness and upon taking up the role of Executor, was confident that their health was not an issue. Relative A received an all clear scan but was scanned again and was diagnosed with another illness. This illness required major surgery which Relative A underwent in March 20YY. After the surgery Relative A was able to deal with some of the Estate matters and probate was granted late 20YY. Relative A was given another all clear however, was again diagnosed with the second illness and underwent surgery in March 20ZZ. Relative A intends for the property to go to auction in early 2014.

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

Reasons for decision: Summary: Section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) disregards 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 the dwelling was the deceased's main residence just before the deceased's death, it was not being used to produce assessable income at that time and the individual disposed of the dwelling (e.g. by sale) within two years of the deceased's death, or within a longer period allowed by the Commissioner. The Commissioner has discretion to extend the two-year time period in relation to CGT events that happened in the 2008/09 income year and later income years. The explanatory memorandum (EM) to the Bill that added the discretion to Section 118-195 of the ITAA 1997, the Tax Laws Amendment (2011 Measures No 9) Bill 2011, includes the following 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 (e.g. 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 trustee of the estate has been unable to attend to the deceased estate due to unforeseen and serious personal circumstances which arose during the two year period. Having considered the relevant facts, the Commissioner is able to apply his discretion under section 118-195 of the ITAA 1997 and allow a reasonable extension to the time limit. The period of extension has a reasonable explanation given the circumstances and an extension will be granted until 2014.