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Edited version of your written advice
Authorisation Number: 1051373106125
Date of advice: 24 May 2018
Ruling
Subject: CGT- extension of time
Question
Will the Commissioner exercise his discretion to extend the 2 year period under section 118-195 of the Income Tax Assessment Act 1997 for a property from an intestate death?
Answer
Yes
This ruling applies for the following period:
Year ended 30 June 20BB
The scheme commences on:
1 July 20AA
Relevant facts and circumstances
The deceased died in Autumn 20CC, intestate.
The property was purchased by the deceased prior to 20 September 1985.
The property was used as the main residence of the deceased until the death of the deceased.
One of the deceased’s step-children resided at the property from before the death of the owner until the sale of the property.
This step-child attempted to have the unsigned will approved as an “informal will” however the process became costly and time consuming.
In Winter 20DD the step-child was informed that he/she was a step-child rather than having been adopted as he/she (and his/her siblings had previously believed), only their names had been changed. Since the deceased died intestate, step-children would have no entitlement on intestacy and could not apply for Letters of Administration as next of kin.
In an attempt to resolve the complex legal issues the children and step-children of the deceased negotiated a Deed of Settlement. All beneficiaries agreed to this settlement.
The beneficiaries lodged an application for a grant of Letters of Administration. The grant of Letters of Administration issued in Winter 20EE.
To avoid further complex legal issues the solicitor then sought and obtained agreement from all parties to agree to the sale of the property at an agreed price provided settlement occurred before Autumn 20DD.
The property settlement took place in Summer 20BB.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 118-195(1).
Reasons for decision
A capital gain or capital loss is made as a result of a capital gains tax (CGT) event happening to a CGT asset (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)). The most common CGT event is CGT event A1 the disposal of a CGT asset.
Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that if 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, then you are exempt from tax on any capital gain made on the disposal of the property acquired by the deceased after 20 September 1985 if:
● the property was the deceased’s main residence just prior to their death
● it was not being used to produce assessable income at this time, and
● Your ownership interest ends within 2 years of the deceased’s death.
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).
The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion to extend the time period in which you can dispose of the property:
● 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.
In determining whether or not to grant an extension the Commissioner is expected to consider whether, and to what extent, the dwelling is used to produce assessable income and how long the trustee or beneficiary held it.
In your case there was a delay from the date of death in 20AA to the settlement of the property in Summer 20BB.
The delay was predominantly due to the complexity of the estate and the need to negotiate a settlement between the many parties involved in this estate.
The Commissioner will exercise his discretion to extend the 2 year time limit to the settlement date as the circumstances relating to the delay in the sale of the property were beyond your control.
Accordingly, the sale of this property will be exempt from CGT pursuant to section 118-115 of the ITAA 1997.
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