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Edited version of your written advice
Authorisation Number: 1013108932660
Date of advice: 18 October 2016
Ruling
Subject: Capital gains tax - deceased estate - Commissioner's discretion to extend the two year period
Question:
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
Income year ending 30 June 20WW
Income year ending 30 June 20XX
Income year ending 30 June 20YY; and
Income year ending 30 June 20ZZ.
The scheme commences on
June 20WW.
Relevant facts and circumstances
Information and documentation has been provided with this private ruling which should be read in conjunction with, and forms part of this ruling.
Prior to 20 September 1985, Person A and Person B jointly purchased the Property at which they resided together until Person B passed away after 20 September 1985.
A number of months after Person B had passed away, their ownership interest in the Property was transferred to Person A.
Person A continued to reside at the Property until they moved out many years after Person B had passed away.
An absence choice was made to continue treating the Property as Person A's main residence after Person A had moved out.
The Property was not used to produce income after Person A have moved out, but was occupied by one or more family members for no consideration to ensure that the Property was not left vacant and had continued to be maintained.
Person A (the deceased) passed away a number of years after they had moved out of the Property.
Under the deceased's will their children (Child A and Child B) were appointed as the Trustees (jointly referred to as You) of the deceased's estate.
In accordance with the deceased's will, the residuary estate was to be held on trust and divided and distributed into parts as specified in the deceased's will to the named beneficiaries.
Probate was granted on the deceased's estate less than 12 months after the deceased had passed away.
The Property has not been used to derive income from the time the deceased passed away, with family members continuing to reside at the Property for no consideration.
Disputes occurred amongst the beneficiaries which resulted in a Deed of Arrangement being executed a number of months after probate was granted between the beneficiaries.
In the following month, the Property was sold by public auction with the purchaser nominating their company (the Company) as the nominee purchaser.
Settlement was expected to occur in late 20XX, however prior to settlement occurring the Company purported to rescind the contract. The Company has issued legal proceedings to have the deposit on the Property returned and has lodged a caveat over the title of the Property, claiming a lien on the deposit paid.
A second auction for the sale of the Property was scheduled to occur in mid to late 20YY, however the Property was sold prior to the auction with a contract of sale being entered into prior to the auction date.
The legal proceedings with the Company need to be finalised to enable the removal the caveat put on the Property and allow the settlement to proceed.
Settlement on the sale of the Property is expected to occur in early 20ZZ.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 subsection 118-130(3)
Income Tax Assessment Act 1997 section 118-195
Reasons for decision
Dwellings acquired from deceased estates
The most common capital gains tax (CGT) event, CGT event A1, occurs when you dispose of an asset to another entity. The time of the event is when you enter into the contract for disposal or if there is no contract when the change of ownership occurs.
If you acquire an asset owned by a deceased person as their executor or beneficiary, you are taken to have acquired the asset on the day the person died.
There are a number of different exemptions or exceptions that, if they apply, can mean that a capital gain or capital loss that you make as a result of a CGT event is disregarded (full exemption) or reduced (partial exemption). Special rules apply if the taxpayer is an individual and their ownership interest in the dwelling passes to them as a beneficiary in a deceased estate, or they own it as trustee of a deceased estate.
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 | |
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 | |
Commissioner's discretion under Section 118-195 of the ITAA 1997
The Commissioner has discretion to extend the two year time period where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death. This discretion may be exercised 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 situation
In this case, the deceased and Person B had jointly purchased the Property prior to 20 September 1985. This had resulted in both of them each having a 50% pre-CGT ownership interest in the Property.
After Person B had passed away after 20 September 1985, the deceased had inherited Person B's 50% ownership interest in the Property. The deceased acquired that ownership interest on the date Person B passed away. Therefore, after Person B had passed away the deceased had a 50% pre-CGT ownership and a 50% post-CGT ownership interest in the Property.
The deceased had moved out of the Property a number of years after Person B had passed away and an absence choice was made to continue to treat the Property as the deceased's main residence after she had moved out of the Property. The deceased had passed away a number of years after they had moved out of the Property.
In this case an absence choice has been made in relation to the Property after the deceased had moved out. Therefore, the Property can continue to be treated as the deceased's main residence from the time Person A moved out of the Property. The Property was not used to produce assessable income. Therefore the conditions for ownership interests in dwelling acquired after 20 September 1985 as listed in the table above have been met and the Property will be viewed as being the deceased's main residence just prior to their passing away.
As settlement on the disposal of the Property will not occur within two years after the date the deceased passed away, we have taken the following into consideration when determining whether or not the Commissioner will exercise his discretion to extend the two year period for you to dispose of the Property:
● A Deed of Arrangement had been executed less than 12 months after Person A had passed away due to disputes between the beneficiaries;
● In the following month the Property was sold with settlement expected to occur in late 20XX. However, the purchaser had rescinded the contract and has commenced legal proceedings to have their deposit returned and had lodged a caveat over the title of the Property;
● The Property was scheduled to be auctioned in mid to late 20YY, however the Property was sold prior to the scheduled auction date; and
● The legal proceedings currently being undertaken with the Company need to be finalised before the caveat on the Property can be removed, which will allow for settlement of the Property to the second purchaser to occur.
We have taken the facts of your situation into consideration when determining whether the Commissioner's discretion would be exercised extend the two year period and allow you to disregard any capital gain or capital loss made on the disposal of the Property.
The Property had been sold with settlement expected to occur in late 20XX, less than two years after the deceased had passed away. However the original sale had been rescinded and court proceedings had commenced with a caveat being put over the title of the Property. A second contract for the sale of the Property was entered into over two years after the deceased had passed away, with settlement expected to occur around 32 or 33 months after the deceased had passed away.
We accept that the reason for the delay in the disposal of the Property was due to the above mentioned issues arising during the two year period after the deceased had passed away.
Having considered the relevant facts, the Commissioner is able to apply his discretion and allow an extension to the two year time limit to dispose of the Property.
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