Will the Commissioner exercise the discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time for you to dispose of your ownership interest in the dwelling and disregard the capital gain or capital loss you made on the disposal on an overseas property?
No. This ruling applies for the following period : Year ended 30 June 2025 The scheme commenced on: 1 July 2024
The deceased passed away in XX XX on DD MM 20YY. The deceased was a resident of XX. The deceased was your parent. You are a XX national and resident of Australia for tax purposes. There was a dispute over the deceased's estate between family members. Due to Covid-19 restrictions and delays in court procedures the outcome of mediation over the estate was not settled until DD MM 20YY. As result of the mediation, you received a share of a property at XX XX XX XX XX. The property was not the main residence of the deceased. The property was occupied by a family member from before the deceased's death until its sale. The property was sold on DD MM 20YY.
Income Tax Assessment Act 1997 subsection 118-195(1) Income Tax Assessment Act 1997 section 118-195(1)(c) Income Tax Assessment Act 1997 section 118-110(4) Income Tax Assessment Act 1997 section 128-15(4)3A
Subsection 118-195(1) of the ITAA 1997 provides that a capital gain or capital loss made on a dwelling acquired from a deceased estate may be disregarded if: • 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 • both of the following requirements are satisfied: (a) 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, and (b) your ownership interest ends within 2 years of the deceased's death or within a longer period allowed by the Commissioner; and • the deceased was not an excluded foreign resident just before the deceased's death.
Subsection 118-110(4) of the ITAA 1997 states that you are an excluded foreign resident at a particular time if you are a foreign resident at that time and the continuous period ending at the time for which you have been a foreign resident is more than 6 years. A main residence exemption is denied for foreign residents, which flows through to deceased estates as well. In your case, the deceased was a foreign resident for more than 6 years just before they passed away; therefore, they were an excluded foreign resident just before they died. Therefore, the condition in subsection 118-195(1) of the ITAA 1997 for the deceased to not be an excluded foreign resident is not met and the Commissioner is unable to consider exercising the discretion to allow a longer period to dispose of the property. Under section 128-15 of the ITAA 1997, where a CGT asset that a foreign resident owned just prior to dying passes to a beneficiary in the estate, the beneficiary is taken to have acquired that asset on the day the deceased died.
The normal capital gains tax (CGT) rules will apply to the disposal of the property. You should note that the first element of your cost base for the property is its market value on the deceased's date of death.