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Edited version of your written advice
Authorisation Number: 1013084716522
Date of advice: 9 September 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') in relation to the dwelling on the property and allow an extension of time until 30 June 2017?
Answer
No.
Question 2
If the answer to Question 1 is no, is the deceased estate assessed on any capital gain?
Answer
Yes.
This ruling applies for the following period(s)
Year ended 30 June 2017
The scheme commences on
1 July 2016
Relevant facts and circumstances
The deceased died in 200X.
The deceased did not have a will or enduring power of attorney in place at the time of their death.
The deceased's main residence is the primary asset of the estate. The property was purchased in 19XX.
The property was not used to produce assessable income at any time since the deceased's death.
During the 2 years since the deceased passed away, little action was taken to finalise the deceased's estate.
The property is used as the main residence of one of the children to the deceased. This is by agreement of the children.
In 20XX, a child of the deceased became the Court-ordered Administrator to the estate.
In recent years, one of the children has been affected by a medical disorder.
Relevant legislative provisions
Income Tax Assessment Act subsection 118-195(1)
Income Tax Assessment Act subsection 128-15(4)
Reasons for decision
Subsection 118-195(1) of the ITAA 1997 states that if you own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an 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 acquired a 50% interest in the property in 19XX. The deceased acquired a further 50% interest in the property when their spouse passed away in 200X. The property was the main residence of the deceased until they passed away in 200X.
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
Application to your circumstances
In this case, the Supreme Court granted you Letters of Administration for the deceased's estate in 20XX, approximately 8 years after the deceased passed away. As there was no will in place for the deceased, you and your siblings were equally empowered to apply for Letters of Administration from which to progress the winding up of the estate.
The deceased passed away intestate - that is, without a will. As such, there can be no trustees or beneficiaries to the estate in accordance with the will, as there was no will to determine the identities of these persons.
During the 2 years immediately following the deceased's death, yourself and your siblings made no substantial steps to finalise the estate, to apply for Letters of Administration, or to sell the property.
In this case, there was no challenge as to the ownership of the dwelling, the estate was not complex, there were no unforseen or serious personal circumstances that prevented the sale by a trustee or beneficiary, and the delay in selling the property is not due to circumstances beyond the beneficiary or trustee's control.
While we appreciate your circumstances, your sibling's medical state making it difficult to finalise the property's sale, it is of a different nature to the situations in which the Commissioner can exercise his discretion. Having considered the relevant circumstances, the Commissioner will not exercise his discretion and extend the 2 year time limit.
Question 2
The deceased's estate owns the dwelling, in trust for the beneficiaries of the estate (being yourself and your siblings in equal shares). The estate is responsible for selling the property, and is liable for any resultant capital gains tax payable. The estate for the deceased declares any gain on its final tax assessment.
The value of the property is taken as at the date of acquisition for the deceased's estate. Subsection 128-15(4) of the ITAA 1997 (see item 3 in the table) states the deceased's legal representative is taken to have acquired the property for its market value at the date of death. In your case, the property was acquired by the trustee of the estate in 200X.
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