Edited version of private ruling

Authorisation Number: 1011625172795

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Ruling

Subject: Commissioner's discretion

Question and Answer

Does the Commissioner have the discretion to disregard the capital gain or loss from the sale of property sold more than two years after the deceased's death?

No.

Does the Commissioner have the discretion to allow the net income of a resident trust estate of a person who died more than three years before the end of the income year to benefit from the tax free threshold?

No.

This ruling applies for the following period

1 July 2009 to 30 June 2010

Relevant facts

Question 1.

Decades ago the taxpayer purchased a property

The property was the taxpayer's main residence until death

In later years one of the taxpayer's children resided with the taxpayer in the property

The taxpayer passed away

After the taxpayer died the child continued to live in the property until it was sold

One of the beneficiaries of the Will was nominated executrix of the estate

Eighteen months after the taxpayer died, the executrix died

The taxpayer's property was not transferred out of the taxpayer's name

Following the death of the executrix, another sibling was nominated as the new executrix of the Will, also a beneficiary

Recently the property was sold, more than two years after the taxpayer's death

Question 2.

The taxpayer inherited property

The property was never rented and no rent was earned by the taxpayer

A child of the taxpayer lived in the property from the time the taxpayer inherited it to the time the taxpayer died

Under the taxpayer's Will one of the beneficiaries was nominated executrix of the estate

The child living in the property continues to live in the property with permission of the executrix

Recently the property was sold, more than three years after the taxpayer's death

You contend that the delay in selling both properties was a result of unfortunate timing of circumstances

Both executrixes appointed were not experienced in dealing with estate property and dealing with other family members on the estates assets.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 99

Income Tax Assessment Act 1936 Subsection 99(A)

Income Tax Assessment Act 1997 Section 118-195

Income Tax Rates Act 1986 subsection 12(6)

Income Tax Rates Act 1986 Schedule 10

Reason for decision

Under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) If as a beneficiary of a deceased estate you acquire a dwelling that was the deceased's residence or a dwelling that was acquired by the deceased prior to 20 September 1985, you are exempt from capital gains tax if:

· you dispose of your ownership interest in it within two years of the deceased's death; or

· the dwelling was, from the deceased's death until your ownership interest ends, the main residence of the deceased's spouse or the main residence of an individual who had the right to occupy the dwelling under the deceased's will.

Therefore, from the evidence you have provided the property was not sold within two years of the taxpayer's death. Under taxpayer's Will the property was not for capital gains tax purposes a main residence of an individual who had the right, under a will to occupy the dwelling from the taxpayer's death until it was sold. As such any capital gain arising from the disposal of the property cannot be disregarded.

Where a capital gain has been made on the sale of property we advise there are no provisions within the Income Tax Assessment Act 1997 that gives the Commissioner discretion to disregard a capital gain that has been made, under any circumstances.

The categories of trusts in respect of which the Commissioner has discretion to assess the trustee under section 99 of the Income Tax Assessment Act 1936 (ITAA 1936) rather than under section 99A of the ITAA 1936 are limited to:

· deceased estates;

· bankrupt estates; and

· trusts that consists of the following types of property as specified in ITAA 1936 section 102AG(2)(c) - (subsection 99A(2) of the ITAA 1936).

The rates of tax for trustees assessed under section 99 are found in subsection 12(6) of the Income Tax Rates Act 1986 (ITRA 1986), which directs attention to Schedule 10 of the Rates Act. Part 1 of Schedule 10 of the ITRA 1986 identifies two classes of trustees for the purpose of determining the rates of tax that are to apply.

Class 1, a trustee assessed under section 99 of the ITAA 1936 in respect of net income of a resident trust estate of a person who died less than three years before the end of the year of income is taxed at the general individual rates.

Class 2, a trustee assessed under section 99 of the ITAA 1936 in respect of net income of resident trust estate, of a person who died more than three years before the end of the year of income. The trustees in this class are liable to tax at the rates specified for resident individuals except that they do not benefit from the tax free threshold of $6000.

There is no discretion available to the Commissioner as to whether class 1 or class 2 will apply under section 99 of the ITAA 1936 and no extension can be granted beyond the three year period.

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