Private ruling: Capital gains tax
Date of advice: 3 September 2015
Published: September 2015
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two year time limit? | A1: Yes

Relevant facts and circumstances: Person A purchased a house after 1985. The property was Person A's main residence until death. Person B was Person A's de-facto partner; they lived together in the main residence for approximately ten years before Person A's death. Person A stated in their will, that their partner Person B could live in the main residence, for the remainder of Person B's life, and then the property would be left to the children. Person B died on xx of xx in xxxx. Date for the contract to sell the main residence property was on xx of xx in xxxx. Settlement occurred on xx of xx in xxxx. No rental income was ever earned from the property.

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

Reasons for decision: Summary: A capital gain or capital loss is disregarded under section 118-195 of the ITAA 1997 where a CGT event happens to a dwelling if it passed to you as an individual beneficiary of a deceased estate or you owned it as the trustee of the deceased estate. The availability of the exemption is dependent upon: • - who occupied the dwelling after the date of the deceased's death, or • - whether the dwelling was disposed of within two years of the date of the deceased's death. For a dwelling acquired by the deceased, you will be entitled to a full exemption if: • the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of the following relevant individuals: • the spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased) • an individual who had a right to occupy the dwelling under the deceased's will, or • an individual beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary, or • your ownership interest ends within two years of the deceased's death. In this case, from the deceased's death until your ownership interest ends, the property was the main residence of spouse of the deceased. A contract to sell the property was signed on xx of xx in xxxx and settlement occurred on xx of xx in xxxx. Therefore, you are entitled to an exemption under section 118-195 of the ITAA 1997 for the period from when the deceased passed away until your ownership interest ends. Subsection 118-130(3) of the ITAA 1997 provides that where the sale or other disposal of the dwelling proceeds under a contract, the ownership interest ends at the time of settlement of the contract of sale and not at the time of entering the contract. In this case, the property sale settled more than two years after the deceased's death. As the property was used by the spouse of the deceased who had a right to occupy the dwelling under the deceased's will until death, you are entitled to an exemption until xx of xx in xxxx. Therefore, the period between the spouse's death and the date the sale settled needs to be examined. Subsection 118-195(1) of the ITAA 1997 confers on the Commissioner discretion to extend the two year exemption period, thus this alternative basis of exemption in the provision may apply. The following is a 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 (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 reasons outside the beneficiary or trustee's control. The delay in disposing of the property after the deceased passed away was due to their spouse having the right to occupy the dwelling. The deceased passed away on xx of xx in xxxx and their spouse passed away on xx of xx in xxxx. A contract to sell the property was signed on xx of xx in xxxx and it settled on xx of xx in xxxx. Therefore, in order for the dwelling to be fully exempt from capital gains tax, the Commissioner will need to apply his discretion until xx of xx in xxxx. In determining whether or not to grant an extension the Commissioner is also 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. 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.