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Ruling

Subject: Deceased estate

Question and answer:

Will the Commissioner exercise his discretion to allow you to disregard any capital gain or loss that results from the disposal of your inherited property after a period of ownership?

No.

This ruling applies for the following period

Year ended 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts

Your parent purchased a property after 20 September 1985.

The property was the main residence of your parent until they passed away.

You and your sibling are joint beneficiaries of the property.

Since acquiring ownership of the property although it has not been the main residence of you or your sibling it has not been used for the purpose of deriving assessable income.

When ownership of the property was passed onto you and your sibling it required extensive repairs before if could be sold.

You undertook the required repairs, which were completed prior to the period of ownership.

You put the property on the market for sale and contract of sale was signed prior to 2 years ownership with a settlement date after 2 years of ownership.

You have applied for the Commissioner's discretion to extend the two-year time period exemption from capital gains tax (CGT) on disposal of the property until settlement occurs.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Section 118-195

Reasons for decision

A capital gain or capital loss may arise if a capital gains tax (CGT) event happens to a CGT asset, under section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997).

Section 108-5 of the ITAA 1997 states that a CGT asset is any kind of property or a legal or equitable right that is not property. Real estate is a CGT asset under this provision. Section 104-10 of the ITAA 1997 makes the disposal of a CGT asset a CGT event.

When a person inherits a deceased person's dwelling, they may be exempt or partially exempt when a CGT event happens to it (for example, when they dispose of it). Where the dwelling is disposed of within two years of the deceased's death, the trustee or beneficiary can disregard the capital gain or capital loss resulting from the sale.

In your case, you will dispose of your ownership of the property that you inherited from your late parent's estate when settlement occurs. This will be beyond a 2 year period since your parent's passing. Therefore you are not entitled to disregard any capital gain or loss that results from the disposal of the property.

Commissioner's discretion

A trustee or beneficiary of a deceased estate may apply to the Commissioner to grant an extension of the two year time period, where the CGT event happens in the 2008-09 income year or later income years under section 118-195 of the ITAA 1997. Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example:

· 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 circumstances outside the beneficiary or trustee's control.

In exercising the discretion the Commissioner will also take into account whether and to what extent the dwelling is used to produce assessable income and for how long the trustee or beneficiary held the ownership interest in the dwelling.

In your case, there was no challenge to the will, the estate was not complex, there were no unforseen or serious personal circumstances that arose during the period, and the settlement of the sale contract was not delayed due to circumstances beyond the beneficiary or trustee's control. While it is acknowledged that the property required extensive repairs before it could be habitable, from the information that you have provided there was no circumstance that restricted the property being disposed of in an uninhabitable state at the time it was inherited.

Accordingly, the Commissioner's discretion will not apply to allow you to disregard any capital gain or loss that results from the disposal of your late parent's property, under section 118-195 of the ITAA 1997.

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