Private ruling: CGT - deceased estate - 2 year - overseas property
Date of advice: 8 May 2017
Published: September 2017
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: March 2014

Ruling: Q1: Will the Commissioner exercise discretion under section 118-195 of the Income Tax Assessment Act 1997 and extend the two year time period until DDMMYY? | A1: Yes.

Relevant facts and circumstances: You are an Australian resident. On XX March 20XX a family member died without a legal Will. Their estate included a residential property (the property), located overseas in C, which was owned jointly with their spouse. The property was the main residence of both your family member and their spouse until their deaths. Under the succession laws in C, your family member's ownership interest in the property was passed to their surviving relatives, being their spouse, you and another family member, J, in equal shares. Out of respect for your family member's spouse and as per custom, the ownership interests in the property were not transferred to you and J during their lifetime. The spouse continued to live in the property until their death on XX May 20XX. The spouse died without a legal Will. Under the succession laws in C, the spouse's ownership interest in the property was passed to their surviving relatives, being yourself and J in equal shares. The transfer of ownership of the property to yourself and J in equal shares occurred on XX July 20XX. You have the property on the market and are in the process of selling the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1997 subsection 118-195(1)

Reasons for decision: Summary: Capital gains tax (CGT) event A1 happens when you dispose of a CGT asset, as established in Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997). 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 will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the 2 year time period. 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 Application to your circumstances In your case, the property was purchased by your family member and their spouse and was their main residence until they passed away. The property was not sold within 2 years of the deceased's date of death. The delay was caused by; both your family member and their spouse passing without a Will, the spouse continuing to live in the property until their death, the complexity of selling an overseas property, dealing with overseas authorities and legal representatives, which prevented you from disposing of the property within the two year time limit. Having considered your personal circumstances, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time until DDMMYY.