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Edited version of private ruling
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Ruling
Subject: Capital gain on residential property
Question 1
Can a Trustee disregard any capital gains tax (CGT) under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) on a dwelling that was the principal residence of the Deceased and has been vacant since the deceased's death?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2010.
The scheme commences on:
01 July 2009
Relevant facts and circumstances
The Deceased passed away intestate.
There were delays in administering the estate due to difficulties identifying and locating beneficiaries and obtaining Letters of Administration from the respective State Supreme Court.
The contract date for the sale of the dwelling was 3 years the Deceased's death.
The dwelling was acquired prior to 20 September 1985 and was the main residence of the Deceased.
The dwelling had been vacant since the death of the Deceased and had not been used for any income producing purposes.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-195
Income Tax Assessment Act 1997 Section 115-25
Income Tax Assessment Act 1997 Section 115-30
Reasons for decision
Summary
Section 118-195 of the ITAA 1997 provides for when a capital gain or capital loss from certain CGT events that happen in relation to a dwelling in which the trustee of a deceased estate has an ownership interest can be disregarded in full. In this case the Trustee does not satisfy the criteria for the capital gain or loss to be disregarded and the Commissioner does not have any discretion to extend the exemptions in section 118-195 of the ITAA 1997 where the requirements are not satisfied.
Detailed reasoning
Subsection 115-30 of the ITAA 1997 specifies when the acquirer is treated as having acquired a CGT asset. As the house was a pre CGT asset of the deceased immediately before his death, you are treated as having acquired this asset when the deceased died in accordance with item 5 of this subsection.
For a dwelling acquired by the deceased before 20 September 1985 a capital gain or loss maybe disregarded under section 118-195 of the ITAA 1997 if either of the following applies:
the trustee's ownership interest ends within two years of the deceased's death; or
From the deceased's death until the disposal of the ownership interest, the dwelling was not used to produce income and was the main residence of one or more of:
· the spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased); or
· 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.
In this case, the trustee disposed of their ownership interest in the dwelling more than two years after the deceased's death. Section 118-195 of the ITAA 1997 does not confer on the Commissioner any discretion to extend the two year exemption period referred to in that section. Further, since the dwelling was not occupied by a relevant individual after the deceased's death, the alternative basis of exemption in the section does not apply.
Consequently, a full main residence exemption will not be available to the trustee in respect of the capital gain made from the disposal of the deceased's main residence.
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