1012730200270 | Legal database

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Edited version of your written advice

Authorisation Number: 1012730200270

Ruling

Subject: Capital gains tax

Question 1

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 ending 30 June 2015

The scheme commences on:

1 July 2014

Relevant facts and circumstances

The deceased passed away at the end of 2011.

The deceased purchased land and then built the family home prior to 20 September 1985.

The property has not been used to earn assessable income.

The deceased had a number of children and each were beneficiaries under the Will.

One of the beneficiaries was directed under the Will to receive an unequal and lesser share of the Estate.

Following considerable discussion between the beneficiaries, legal advice was obtained that the terms of the Will could be varied by mutual consent of all the beneficiaries in the form of Deed of Family Arrangement (the Deed). The effect of the Deed was to allow the Executors to provide all of the beneficiaries with an equal share of the proceeds of the Estate.

Duty on the Deed was levied. Following further investigation, the Deed was returned to the Office of State Revenue for reassessment and the Deed subsequently stamped for nominal stamp duty.

The property was put on the market towards the end of 2013. Initially the sale price was unrealistically high to appease some of the beneficiaries.

A contract was entered into in mid-2014. It has since settled.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-195.

Reasons for decision

Summary

Due to the complexity of the Estate, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997.

Detailed reasoning

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 at the end of 2013. 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 estate was quite complex, this was due to:

• The unequal distribution of the Will between the beneficiaries caused considerable discussion and a Deed of Family Arrangement was entered into.

• The Office of State Revenue incorrectly calculated the stamp duty on the Deed. Therefore the executors had to apply for a refund.

• The large number of beneficiaries, each with differing expectations and the need to preserve family unity between the siblings throughout administration of the Estate.

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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