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Edited version of your private ruling
Authorisation Number: 1012555456870
Ruling
Subject: Capital gains tax
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 period
Year ended 30 June 2013
The scheme commences on
1 July 2012
Relevant facts and circumstances
The deceased and their spouse purchased a property in before 20 September 1985.
The deceased inherited their late spouse's share of the property after 20 September 1985.
The deceased vacated the premises and moved to a nursing home in the 200X financial year.
The property remained vacant until the deceased passed away in the 200Y financial year.
A legal dispute arose amongst the beneficiaries due to the discovery of several wills.
Court action was taken which was not resolved until the 200Z financial year.
The beneficiaries took part in mediation and entered into a Deed of Family arrangement in the relevant financial year.
The property was sold and settled in the relevant financial year.
The property remained vacant after the deceased passed away.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 118-195(1)
Reasons for decision
Subsection 118-195(1) of the ITAA 1997 states that if you own a dwelling in a capacity as trustee of a deceased estate, then you are exempt from tax on any capital gain made on the disposal of the property if:
· the property was acquired by the deceased before 20 September 1985, or
· the property was acquired by the deceased 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, and
· your ownership interest ends within 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances).
In this case, the deceased purchased the property prior to 20 September 1987. The deceased inherited their late spouse's interest after 20 September 1985. The property was their main residence until they passed away in the 200Y financial year. You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the 2 year time period.
The Commissioner can exercise his discretion in situations such as where:
· 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
You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed).
Application to your circumstances
In this case, several wills were made by the deceased. The beneficiaries disagreed as to which will was made validly by the deceased. The matter was resolved by the courts and a Deed of Family Arrangement was executed. The property was sold and settled in the relevant financial year.
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 two year time limit.
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