Edited version of private advice

Authorisation Number: 1051766558315

Date of advice: 1 December 2020

Ruling

Subject: Capital gains tax

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 to xxxx for the main residence at xxxx?

Answer

Yes.

Having considered the full circumstances and the relevant factors, the Commissioner will exercise the discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time.

Question 2

Will the capital gain for the main residence be disregarded?

Answer

Yes.

The capital gain is disregarded under Subdivision 118-B of the ITAA 1997.

Question 3

Will the capital gain for the property at xxxx be disregarded?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 2020

The scheme commences on:

1 July 2019

Relevant facts

The deceased died on xxxx.

Probate was granted on xxxx.

The deceased owned a property consisting of xxxx acres. The deceased inherited the property, after 1985. It was their main residence as well as a source of income.

Due to ill health, the deceased was admitted to respite on xxxx and admitted permanently to a nursing home on xxxx. The deceased remained in the nursing home until he passed away. The deceased chose to continue to treat the property as his main residence.

At the time of death, the property was subject to a lease. This lease commenced xxxx for x years with two further options. The leased land was for xxxx acres, bearing in mind that 1 acre not being leased around the home property.

The lease was to an unrelated third party.

From the date of death, there were negotiations to try and achieve a sale satisfactory to the beneficiaries.

The value of the property at date of death was $xxxx.

After discussions with the beneficiaries, the Executor engaged a surveyor to subdivide the property such that the smaller house and housing lot could be excised from the property to enable the sale of this portion of the property that was not then subject to the lease.

The xxxx acres property was eventually sold on xxxx, subject to the subdivision. Contract price was $xxxx. Settlement took place on xxxx.

Contract for sale of the home was signed on xxxx subject to the subdivision. Goods sold included the gas heater, floor coverings and window furnishings. The contract price was $xxxx. Settlement date was initially xxxx. Due to the purchaser's lender not being in a position to settle on time, the purchaser did not settle until xxxx.

Despite repeated attempts by the Executor to have the necessary tasks completed by the relevant authorities and surveyor, the subdivision was registered on xxxx.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 Subdivision 118-B

Income Tax Assessment Act 1997 Division 152

Reasons for Decision

Capital gains tax (CGT) is the tax that you pay on certain gains you make. You may make a capital gain as a result of a CGT event, happening to an asset in which you have an ownership interest. The most common CGT event, CGT event A1, occurs when you dispose of your ownership interest in a CGT asset to another entity. The capital gain or capital loss is made at the time of the event (section 104-10 of the ITAA 1997).

Main residence exemption

Generally, you can disregard a capital gain or loss from a CGT event that happens to your ownership interest in a dwelling that is your main residence.

Under subsection 118-195(1) of the ITAA 1997 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), the capital gain or capital loss made from the disposal of the dwelling is disregarded 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 the main residence of the deceased until they passed away on xxxx.

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 relevant circumstances, the Commissioner will exercise his discretion and extend the 2 year time limit to xxxx.

As the other relevant requirements of subdivision 118-B of the ITAA 1997 have been met, the capital gain on the sale of the main residence is disregarded.

Other CGT exemptions

Division 152 of the ITAA 1997 provides some exemptions and small business concessions to reduce a capital gain providing certain conditions are satisfied. Under section 152-80 of the ITAA 1997 a legal personal representative may be eligible for small business CGT concessions in respect of the sale of the deceased's CGT asset if you make a capital gain on the asset within two years of the person's death. You will be eligible for the exemption or concession to the same extent that the deceased would have been eligible just prior to their death.

In this case, the deceased was not carrying on a business just prior to his death. Furthermore, the property was not used for carrying on a business by a related entity or an affiliate. As the deceased was not eligible for any small business exemption or concession under Division 152 of the ITAA 1997, no exemption or concession is available to the deceased estate for the property.

Please note, that even if subdivision of the property had not occurred, the main residence exemption would not apply to the other property.

Land adjacent to a dwelling qualifies for the main residence exemption if it and the dwelling used as the main residence are sold together and both of the following apply:

•         during the period you owned it, you used the land mainly for private and domestic purposes in association with the dwelling, and

•         the total area of the adjacent land and the land on which the dwelling stands is not more than two hectares (4.94 acres).

No other provision allows the CGT to be disregarded on the sale of the farming property.

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