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Edited version of your written advice
Authorisation Number: 1013056634406
Date of advice: 21 July 2016
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 periods:
Year ending 30 June 2017
Year ending 30 June 2018
The scheme commences on:
1 July 2016
Relevant facts and circumstances
The deceased died in 20XX.
Probate was granted in 20ZZ, a delay in probate was due to the questioning of the deceased's mental capacity at the time of the final will.
A property was an asset of the estate; this was the deceased's main residence up until the date of their death and has not been used for income producing purposes.
The property was subject to a voluntary acquisition.
You engaged a lawyer, in 20YY to act on your behalf for the negotiations of the sale of the property.
You received an offer which stated that you were welcome to obtain your own valuation for comparative purposes.
In 20YY you requested your lawyer to engage a valuer for you. Your lawyer took considerable time in arranging this causing a delay in the valuation.
Due to your dissatisfaction with your lawyers' services you ended your dealings with him/her and engaged a new lawyer.
Your valuer was contacted by your new lawyer to continue negotiations.
At the present time the valuer's are unable to reach an agreement regarding details regarding the property.
During negotiations, the other parties' valuer has been slow in contacting your valuer causing further delays to settlement.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10,
Income Tax Assessment Act 1997 section 118-195
Income Tax Assessment Act 1997 subsection 118-195(1)
Reasons for decision
An exemption may apply to the disposal of a dwelling you acquired because you were a trustee of a deceased estate. Section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) outlines the conditions under which a capital gain or capital loss can be disregarded in this situation.
As per subsection 118-195(1) of 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 |
You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period in which you can dispose of the property.
The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion to extend the time period in which you can dispose of the property:
• 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 your case, the delay in disposing of the property has been caused by a delay in granting probate, your lawyer actioning your requests in a timely manner and the disagreement between the valuer's, regarding the value of the property. The other parties' valuer has also contributed to the delay by contacting your valuer in an untimely manner.
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.
As a result of extending the two year time limit, you will satisfy all of the conditions contained in section 118-195 of the ITAA 1997. Accordingly, you can disregard any capital gain or loss that arises as a result of the disposal of the property.
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