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Edited version of your written advice
Authorisation Number: 1012762846151
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.
Question 2
Will the entire capital gain made on the disposal of the property be disregarded?
Answer
No, only a portion of the capital gain can be disregarded.
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 died in the relevant financial year.
The deceased owned a property which was on land of more than 2 hectares.
The property was acquired by the deceased after 20 September 1985.
The property was the deceased's main residence at the time of their death and was not used to produce assessable income.
There were difficulties in resolving various issues of the deceased's estate due to the nature of the death and the deceased and their spouse having children from previous relationships.
The executor of the deceased's estate made efforts to dispose of the property. However, the executor of the spouse's estate was unco-operative.
The executor of the deceased's estate was prepared to issue proceedings in the Court seeking directions from the court in relation to the sale of the property. However prior to doing so the other executor changed solicitors and subsequently agreed to the sale of the property.
The property was sold and settlement occurred in the 2014-15 financial year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 118-195(1)
Reasons for decision
Question 1
Subsection 118-195(1) of the ITAA 1997 allows a trustee of a deceased estate to disregard a capital gain or loss from a dwelling that a deceased person 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).
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 this case, the complexity of the deceased's estate and the lack of co-operation from the other executor delayed the disposal of the property.
Having considered the particular circumstances of this case, the Commissioner will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.
Question 2
A full main residence exemption can only apply if the dwelling is on land of 2 hectares or less. However, a partial exemption is available in circumstances where the land is more than 2 hectares.
In this case as the property was more than 2 hectares, a partial main residence exemption is available. Therefore, only a portion of the capital gain can be disregarded.
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