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Edited version of your written advice
Authorisation Number: 1051178401005
Date of advice: 6 January 2017
Ruling
Subject: Capital gains tax
Question 1
Will the Commissioner exercise discretion under Section 118-195 of the Income Tax Assessment Act 1997 and allow an extension of time to the two year period until XX December 20XX?
Answer
Yes
This ruling applies for the following periods:
Year ending 30 June 20ZZ
The scheme commences on:
1 July 20YY
Relevant facts and circumstances
Parent 1 died in 20XX.
Parent 2 died 20YY.
Your parents purchased the property as tenants in common in the mid 1970's.
In 20XX Parent 2 developed a disease.
You and your sibling were carers for parent 2 until they passed away.
You inherited Parent 1's 50% interest in the property.
You and your sibling were unable to dispose of your inherited share of the property due to your caring duties of Parent 2.
In 20YY the title of the property was transferred into yours and your sibling's names.
The property was sold and settled in 20YY.
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
Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) specifies that capital gains tax (CGT) event A1 occurs if you dispose of a CGT asset. Disposal of an asset occurs where there is a change of ownership.
If you inherit a deceased's person's dwelling, you may be exempt or partially exempt for a CGT liability when a CGT event happens to it.
When considering the exemptions that may apply to a property that has been disposed of, the ownership interests in the property need to be determined.
In this case, as the property was purchased as tenants in common by your parents, there are two separate CGT interests.
Subsection 118-195(1) of the Income Tax Assessment Act 1997 (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).
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 (rather than the date the contract of sale is signed).
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 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
The ownership interest that was inherited from Parent 2 has been disposed of within 2 years and the Commissioner's discretion is not required.
The ownership interest that was inherited from Parent 1 was disposed of outside the 2 year time period. The delays were due to both beneficiaries parent being seriously ill and requiring care.
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 until XX December 20XX.
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. Therefore, you can disregard any capital gain or loss that arises as a result of the disposal of the property.
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