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Ruling
Subject: Small business capital gains tax concessions
Question
Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time to the two year period?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2012
Year ended 30 June 2013
The scheme commences on:
1 July 2011
Relevant facts and circumstances
Your relative passed away in the 200X financial year.
The deceased's principal residence (on land less than 2 hectares) was acquired after 20 September 1985.
According to the will of the deceased, you were entitled to receive the property; however the will was contested by another party.
After engaging legal representation to uphold the will you were awarded the property in the relevant financial year.
The property was then disposed of in the subsequent financial year.
From the date of your relative's death to the date of sale, the property was not tenanted nor used at any time to produce assessable income.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 118-195(1).
Reasons for decision
As per subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling (or your ownership interest in it) is disregarded if:
(a) 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
(b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied.
Beneficiary or trustee of deceased estate acquiring interest | |||
Item |
One of these items is satisfied |
And also one of these items | |
1 |
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 |
your *ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner | |
........... | |||
2 |
the deceased *acquired the *ownership interest before 20 September 1985 |
the *dwelling was, from the deceased's death until your *ownership interest ends, the main residence of one or more of: | |
|
|
(a) |
the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or |
|
|
(b) |
an individual who had a right to occupy the dwelling under the deceased's will; or |
|
|
(c) |
if the *CGT event was brought about by the individual to whom the *ownership interest *passed as a beneficiary - that individual |
In this case when your relative passed away the property passed to you as a beneficiary of the estate. Due to the will being contested, this did not occur until the relevant financial year. The property was acquired by the deceased after 20 September 1985 and it was their main residence just prior to their death.
The property was sold outside the two year period outlined in subsection 118-195(1) of the ITAA 1997. Therefore, you will only be able to disregard the capital gain from the sale of the property if the Commissioner grants an extension to the 2 year time limit.
The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion:
§ 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 (eg 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 reasons outside the beneficiary or trustee's control.
In determining whether or not to grant an extension the Commissioner is expected to consider whether and to what extent the dwelling is used to produce assessable income and how long the trustee or beneficiary held it.
Application to your circumstances
In this case, the deceased's will was contested by another party. You engaged legal council to uphold the will and you were awarded the property by the Court. The property was never used to produce assessable income and was held by you for approximately X months after you were awarded ownership.
Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the 2 year time limit.
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