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Edited version of your written advice
Authorisation Number: 1013141104313
Date of advice: 21 December 2016
Ruling
Subject: Capital gains
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 property and allow an extension of time until 20XX?
Answer
Yes
Question 2
Can the Administrator disregard any capital gain or loss that arises from the disposal of the property under section 118-195 of the ITAA 1997?
Answer
Yes
This ruling applies for the following period
Year ending 30 June 20XX
The scheme commences on
1 July 20XX
Relevant facts and circumstances
The deceased passed away in 20XX.
The deceased's main residence ('the property') formed part of the deceased's estate. The property was purchased 19YY as joint tenants with the deceased's spouse.
The deceased acquired sole ownership of the property when deceased's spouse passed away in 20XX.
The deceased's will appointed their children as executors of the estate.
A deed of settlement was entered by the executors and beneficiaries in 20XX.
In 20XX, a real estate agent was appointed to sell the property.
A dispute arose regarding the property, and an executor filed an application with the Relevant Court in 20XX.
A contract of sale was entered into in 20XX to sell the property.
In 20XX, the Relevant Court ordered the removal of the existing executors and appointed A as administrator in the event that the contract dated 20XX was terminated by 20XX.
In 20XX, the contract of 20XX was terminated by the purchasers. The new administrator was appointed.
The administrator appointed a new real estate agent.
A contract was entered into in 20XX for the sale of the property, which did not proceed.
A contract was entered into in 20XX with one of the beneficiaries, with settlement due to occur in 20XX.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 118-195(1)
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 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).
You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement.
In your case, the property was purchased by the deceased and their spouse as joint tenants in 19YY. The deceased became sole owner of the property in 20XX when their spouse passed away. It was the deceased's main residence until they passed away in 20XX. The property was not sold within 2 years of the deceased's date of death.
You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the 2 year time period.
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 your case, the deceased's will was challenged, and finalising the estate was delayed by two sales contracts falling through.
Having considered your circumstances, the Commissioner is able to apply his discretion and allow an extension of time until 20XX. The administrator can disregard any capital gains or losses arising from the disposal of the property.
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