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Edited version of your written advice
Authorisation Number: 1051213899756
Date of advice: 12 April 2017
Ruling
Subject: Capital gains tax relating to a deceased estate- Commissioner's discretion
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
Question 2
Can you disregard any capital gain or loss that arises from the disposal of the property under subsection 118-195(1) of the ITAA 1997?
Answer
Yes
This ruling applies for the following period:
Year ending 30 June 2017
The scheme commences on:
1 July 2016
Relevant facts and circumstances
The deceased died in 20XX.
The deceased was a foreign resident at the time of their death.
The deceased acquired the property as beneficiary through a deceased estate in the 1960's.
The deceased left a will appointing K as executor for the estate (the trustee).
The trustee resides overseas.
Probate was granted in 20XX.
The title of the property transferred to K in their capacity as trustee in 20XX.
The property was sold at auction in 20XX with settlement due to occur 6 weeks from sale date.
The estate was required to lodge previous income tax returns in both Australia and the foreign country on behalf of the deceased. Completing these returns in two different countries and in differing currencies has added an additional level of complexity to the administration of the estate.
The estate is still in the process of being wound up and finalised.
The trustee's family member suffered an injury from an accident which left them requiring full time care. The trustee had carer responsibilities for the family member during this period. The trustee's family member recently passed away.
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 (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).
In this case, the property was acquired by the deceased before 20 September 1985 and 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
Having considered the circumstances and the factors outlined above, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time.
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