1 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 of the property?
1 No. Question 2 Are you eligible for a partial main residence exemption for capital gains tax arising from the sale of your ownership interest in the inherited dwelling under section 118-200 of the Income Tax Assessment Act 1997 (ITAA 1997)? Answer 2 Yes. This ruling applies for the following period Year ended DD/MM/20YY The scheme commenced on: DD/MM/20YY
In the facts below, the expressions 'you' and 'your' refer to Person A and Person B and are used interchangeably throughout. On DD/MM/20YY, the deceased passed away, leaving a will. The deceased was not an excluded foreign resident just before their death. The deceased owned a property at XXX (the property), which they acquired in or around the 19YY's (and prior to 20 September 1985). At time of death, the property was the deceased's main residence and has not been used to produce assessable income. The property is less than 2 hectares. The deceased's spouse was living with them at time of death, and they continued to reside there until they passed away. The will named you (Person A and Person B) and Person C as executors and trustees, and also the beneficiaries. In late 20YY, Person C moved into the property to care for the deceased's spouse. On DD/MM/20YY, the deceased's spouse passed away. Person C continued to live at the property as their main residence up until it was eventually sold. On DD/MM/20YY, probate was granted to you and Person C.
Around MM/20YY, you and Person C met with your solicitor to discuss various issues concerning the estates of the deceased and the deceased's spouse. It was determined that steps would be taken to sell the property. On DD/MM/20YY, you and Person C were alerted that a portion of the property (being a portion that existed on a separate title) was not held by the deceased. You were informed that if you wished to sell the property, this issue would need to be investigated. You and Person C were later informed that the property comprised of two title references, one which was held in the name of the deceased, and the other which was held in the name of Person D. The portion of the property that was owned by Person D provided access to the main lot. Accordingly, you would not be able to sell the property until this issue was resolved. Whilst the issue of the property's title was being resolved, you and Person C took steps towards preparing the property for sale, by engaging various real estate agents to conduct appraisals of the property and clearing the property in order to prepare it for sale.
On DD/MM/20YY, once the issues with the property title had been rectified the title was transferred into the names of you and Person C as joint tenants. Several years later, on DD/MM/20YY, a contract of sale was signed. On DD/MM/20YY, settlement occurred.
Income Tax Assessment Act 1997 section 118-195 Income Tax Assessment Act 1997 section 118-200
These reasons for decision accompany the Notice of private ruling for Person A and Person B. This is to explain how we reached our decision. This is not part of the private ruling. Issue Commissioner's discretion - deceased estate Question 1 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 of the property? Detailed reasoning Section 118-195 of the Income Tax assessment Act 1997 (ITAA 1997) applies to whom an ownership interest in the dwelling passed as a beneficiary of a deceased estate. A capital gain or capital loss may be disregarded where a capital gains tax event happens to a dwelling if you owned it as the trustee or beneficiary of the deceased estate. For a dwelling acquired by the deceased before 19 September 1985, that was the deceased's main residence you will be entitled to a full exemption if your ownership interest ends within two years of the deceased's death. Your ownership interest ends at the time of settlement of the contract of sale.
In your case, the deceased acquired the property before 19 September 1985. After the deceased passed away, you owned the property as a beneficiary of the estate. The property was the deceased's main residence until they passed away. The property settled more than two years after the deceased's death. Therefore, you require the Commissioner's discretion to extend the two-year period to be eligible for an exemption. Practical Compliance Guideline 2019/5 (PCG 2019/5), Capital gains tax and deceased estates - the Commissioner's discretion to extend the 2-year period to dispose of dwellings acquired from a deceased estate and provides guidance on factors we consider when deciding whether to grant the discretion. Paragraph 3 provides that we will allow a longer period where the dwelling could not be sold and settled within two years of the deceased's death due to reasons beyond your control that existed for a significant portion of the first two years. Paragraph 14 explains we weigh up all of the factors (both favourable and adverse) in regard to the facts and circumstances of your case.
Paragraph 17 provides a list of other factors that may be relevant to the exercise of the Commissioner's discretion which includes the sensitivity of your personal circumstances including: •#160; the sensitivity of your personal circumstances and of other surviving relatives of the deceased •#160; the degree of difficulty in locating all beneficiaries required to prove the will •#160; any period the dwelling was used to produce assessable income, and •160; the length of time you held the ownership interest in the dwelling Application to your circumstances We have applied your facts and circumstances to the PCG 2019/5 noted above. We considered the property was not used for income producing purposes and was the main residence of the deceased. We further considered, the significant time you held the property before putting on the market for sale. Once the issues with regards to the property title not fully being held in the deceased's name were addressed, and the title transferred to the beneficiaries, there were no other significant factors provided that would delay selling the property.
Having considered the relevant facts, we will not apply the discretion under subsection 118- 195(1) of the ITAA 1997 to allow an extension to the two-year time limit. Question 2 Are you eligible for a partial main residence exemption for capital gains tax arising from the sale of your ownership interest in the inherited dwelling under section 118-200 of the Income Tax Assessment Act 1997 (ITAA 1997)? Partial exemption Although you don't satisfy the conditions for a full main residence exemption under section 118-195 of the ITAA 1997, you are entitled to a partial exemption under subsection 118-200(2) of the ITAA 1997, as you are an individual and your ownership interest in a dwelling passed to you as a beneficiary of a deceased estate. . You calculate your capital gain or capital loss using the formula set out in subsection 118-200(2) of the ITAA 1997: CG or CL amount × Non-main residence days ÷Total days where : CG or CL amount is the *capital gain or *capital loss you would have made from the *CGT event apart from this Subdivision. non-main residence days is the sum of:
the number of days in the period from the death until your ownership interest ends when the dwelling was not the main residence of an individual referred to in item 2, column 3 of the table in section 118 - 195. total days is : if the deceased * acquired the ownership interest before 20 September 1985--the number of days in the period from the death until your ownership interest ends The deceased's spouse continued to reside in the property as their main residence from the deceased's death up until they passed away. Therefore, the non-main residence days in the above mentioned formula can be reduced by the number of days in the period from the date of the deceased's death on DD/MM/20YY, to the date of the deceased's spouse's death on DD/MM/20YY.