Private ruling: Capital gains tax and commissioner's discretion for deceased estates
Date of advice: 21 July 2017
Published: November 2017
Ruling period: Year ending 30 June 2003 | Year ending 30 June 2004 | Year ending 30 June 2005 | Year ending 30 June 2006 | Year ending 30 June 2007 | Year ending 30 June 2008 | Year ending 30 June 2009 | Year ending 30 June 2010 | Year ending 30 June 2011 | Year ending 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2002

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA1997) in relation to the property? | A1: No.

Relevant facts and circumstances: The deceased purchased the property before 20 September 1985. The property was less than 2 hectares and was used as their main residence and for activities since its purchase. They lived at the property with their spouse until they died in 19AA. In their Will the deceased left their entire estate on trust providing a life interest to their spouse. Their Will also stated that after the death of their spouse the trustees were to sell the property. Probate was granted in 19BB and the property was valued at $XX. The spouse lived in the property as their main residence until their death in 20CC. More than 2 years after the spouse’s death developers commenced subdividing land around the property into small building allotments. Several years later you received notification from a government authority that they were going to resume a portion of the property by compulsory acquisition. You then sought compensation for the compulsory acquisition in the Court and were awarded an amount. The government authority lodged an objection to the amount of compensation awarded. However, they made a part payment. They lodged an appeal to the Relevant Court. The balance of the compensation was withheld pending the outcome of the appeal. The Court of Appeal upheld the original decision of the Court. This decision was handed down in 20GG. The balance of the compensation, with interest, was paid in late 20GG. The remaining portion of the property, on which the dwelling sat, was subdivided from the land compulsorily acquired. The remainder of the property was sold in 20XX for $XX. The property was never leased for rental income purposes.

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 own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an 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 before 20 September 1985, or ● the property was acquired by the deceased 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, and ● your ownership interest ends within 2 years of the deceased’s death (the Commissioner has discretion to extend this period in certain circumstances). You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed). In this case, the deceased acquired the property before 20 September 1985. The property was the main residence of the deceased until they passed away in 19AA. 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 this case, there has been no challenge to the will, the estate was not complex, there were no unforseen or serious personal circumstances the prevented the sale, and the delay in selling the property is not due to circumstances beyond the beneficiary or trustee’s control. Having considered the relevant circumstances, the Commissioner will not exercise his discretion and extend the 2 year time limit.