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Edited version of your private ruling
Authorisation Number: 1012555577081
Ruling
Subject: Capital gains tax
Question 1
Will the Commissioner apply the concessional tax rates to the fourth and fifth income years?
Answer
No.
Question 2
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 2013
Year ending 30 June 2014
Year ending 30 June 2015
The scheme commences on:
1 July 2012
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You are an executor of your parents estate.
Your parent passed away in early 20XX.
Your parent purchased a house (the property) prior to September 1985. It was their main residence. It has not been used to produce assessable income.
In 20YY, you suffered a major health issues. You required a long recuperation.
Income of the estate is from investments and is used to cover operational costs of the property.
The property will be listed for sale in early 20ZZ.
Relevant legislative provisions
Income Tax Rates Act 1986 Subsection 12(6).
Income Tax Rates Act 1986 Schedule 10.
Income Tax Assessment Act 1997 Section 118-195.
Reasons for decision
Rates of Tax
Subsection 12(6) and Schedule 10 of the Income Tax Rates Act 1986 (ITRA 1986) set down the rates of tax payable by a trustee under section 99 of the ITAA 1936.
Where a person died less than three years before the end of the year of income, Schedule 10 limits the rate of tax to the rate applicable to the taxable income of a resident taxpayer as set out in Schedule 7. This rate includes nil income tax on the tax free threshold amount.
Under Clause 2 of Part 1 of Schedule 10 of the ITRA 1986, a trustee assessed under section 99 of ITAA 1936 in respect of a person who dies more than three years before the end of the year of income is not entitled to the tax free threshold.
The rates of tax payable under Clause 2 of Part I of Schedule 10 of the ITRA 1986 are outlined in Part I of Schedule 7 and subsections 14 (1) and (2) of the ITRA 1986.
Therefore, as trustee of the deceased estate, you are not entitled to the tax free threshold for the relevant and subsequent income years.
While we appreciate your situation, there is no legislative discretion available to the Commissioner to extend the period for when the tax free threshold may apply.
Main residence exemption
Section 118-195 of the ITAA 1997 allows an individual to disregard a capital gain or capital loss made from a Capital Gains Tax event (ie. sale of the property) that happens in relation to a dwelling where:
The ownership of the dwelling passed to you as the beneficiary of a deceased person's estate,
· The deceased person died after 20 August 1996,
· The deceased acquired the dwelling prior to 20 September 1985, and
· The dwelling was the deceased person's main residence just before death.
You fit into the above requirements. Therefore, you may be eligible to disregard the capital gains tax if:
· you dispose of your interest in the dwelling within two years of the deceased's death, or
· the dwelling is your main residence from the date of death until the time your ownership ends.
The two year time period to dispose of the property expired in Month 20YY. Therefore, you will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period.
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.
In this case:
· The executor suffered major health issues that required a long recuperation.
· The property will be listed for sale in early 20ZZ.
· The property was never used to produce assessable income.
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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