Private ruling: CGT – Deceased Estate
Date of advice: 17 May 2018
Published: July 2018
Ruling period: Year ended 30 June 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? | A1: Yes

Relevant facts and circumstances: The deceased died in Spring 20AA. The deceased left a will which left his private property (a pre-CGT property) equally between his children. However one was disabled and this child’s accommodation was not addressed in the will. The disabled beneficiary had lived at this property for their entire life and due to disability their family and carers believed that the disabled beneficiary would not be able to move to another property. The beneficiaries allowed the disabled beneficiary to remain living in the property until it became necessary to take up residence in a nursing home. After the property was vacated the beneficiaries promptly sold the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 119-195

Reasons for decision: Summary: As per subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling, or your ownership interest in it, is disregarded if: (a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and (b) at least one of the items in column 2 and at least one of the items in column 3 of the table 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 You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period in which you can dispose of the property. The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion to extend the time period in which you can dispose of the property: ● 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 determining whether or not to grant an extension the Commissioner is 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. In your case, the delay was caused by the complexity of the deceased’s estate resulting from the need to deal with the complexities necessary to provide accommodation and care to a disabled beneficiary. The administration of the deceased’s estate could not be finalised until the disabled beneficiary was able to move into a nursing home. This prevented the trustee from disposing of the property within the two year time limit. The property was the main residence of the deceased until the time of death and it was not used to produce assessable income. 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 to 12 April 2018. As a result of extending the two year time limit, you will satisfy all of the conditions contained in section 118-195 of the ITAA 1997. Accordingly, you can disregard any capital gain or loss that arises as a result of the disposal of the property.