Edited version of private advice

Authorisation Number: 1051790603376

Date of advice: 18 December 2020

Ruling

Subject: Capital gains tax and small business concessions

Question 1

Does the Commissioner agree that the temporary absence rule in section 118-145 (ITAA 1997) applies so that the residential title remained the principal residence of the taxpayer's parent from XX/XXXX until the death in XX/XXXX?

Answer

Yes

The conditions for applying section 118-145 to your situation are satisfied. Your parent's home was rented from XX/XXX until your parent's death on XX/XX/XXXX which is within the 6 year time frame.

Question 2

Will the Commissioner exercise his discretion to extend the two-year time limit for sale of inherited properties until the actual sale date so that the taxpayer is eligible for the CGT principal residence exemption for the residential title?

Answer

Yes

The conditions for applying section 118-195 to your situation are satisfied and the Commissioner is satisfied that factors outside of your control caused the property to not be sold within the two year timeframe, The Commissioner will extend the two year period until the sale date on XX/XX/XXXX for the residential property.

Having considered your circumstances and the relevant factors, the Commissioner is able to apply the discretion under subsection 152-80(3) of the ITAA 1997 and allow an extension of time until the sale date on XX/XX/XXXX for the commercial property.

Question 3

Will the Commissioner exercise his discretion to allow the taxpayer further time to make a choice to apply the small business CGT concessions for the disposal of the 50% post-CGT portion of the commercial property?

Answer

Yes. The taxpayer did not make a valid choice at the time your year ending 30 June 20XX income tax return was lodged. There is no mischief involved. The Commissioner considers it fair and equitable in these circumstances for an extension to be allowed. The Commissioner has granted until XX/XX/XXXX to make a valid choice to apply the small business CGT concessions.

This ruling applies for the following periods:

30 June 20XX

30 June 20XX

30 June 20XX

The scheme commences on:

1July 20XX

Relevant facts and circumstances

The taxpayer was born XX/XX/XXXX and is XX years old.

The taxpayer's parents purchased two properties in joint names around 19XX.

The properties consisted of two titles:

•         One title was used as their main residence

•         The other title was used by them to operate a car mechanic and engine repairs business.

The taxpayer took over the business in XXXX and continued to operate at the same location.

The taxpayer's parents continued to live in their house.

The taxpayer's parent died on XX/XX/XXXX. As the properties were owned as joint tenants, the parent's share of the properties then passed to the other parent.

The taxpayer's parent continued to reside in the residential property until XX/XXXX at which time the parent moved to a residential aged care facility.

The taxpayer rented out the parent's residence after receiving instructions from the Department of Veteran Affairs.

The residence continued to be rented until it was sold, and settlement occurred.

The taxpayer's parent died on XX/XX/XXXX.

Probate was granted on XX/XXXX.

The taxpayer's sibling was excluded from the Will as a beneficiary so there was a potential for a claim against the Estate so no action could be taken for 6 months after probate.

The taxpayer was executor of the parent's estate and the properties were transferred to the estate on XX/XX/XXXX.

The taxpayer's parent's death was registered on the titles on XX/XX/XXXX.

The estate transferred the properties to the taxpayer as the beneficiary on XX/XX/XXXX.

The taxpayer received advice to undertake environmental assessments before placing the properties on the market as they were not saleable.

Environmental audits were required as the site had previously been used as a service station, as such there were significant structures underground that needed to be shown as safe or removed and the land shown to be environmentally fit for sale.

The taxpayer began significant environmental audits in XX/XXXX. Due to the cost of the audit and the Estate having no other liquid assets, the audit on the properties was done in two stages.

The taxpayer spent over $XXX,XXX to make the property ready for sale.

The environmental audit of the first stage concluded on XX/XX/XXXXX, showing the site was environmentally sound for sale.

As the titles were adjoining the taxpayer had to wait for the environmental audit of the second site also before selling the properties.

The environmental audit for that parcel of land commenced XX/XXXX and concluded in XX/XXXX, showing the site was environmentally fit for sale.

A contract was signed on XX/XX/XXXX, the contract contained three conditions precedent to settlement, one of which was the favourable conclusion of the stage two environmental audit. These conditions could only be waived by the Purchaser.

On XX/XX/XXXX the special condition satisfaction date was extended for a further 1 month.

On XX/XX/XXXX the special condition satisfaction date was extended to XX/XX/XXXX.

Settlement occurred on XX/XX/XXX.

The taxpayer's original tax agent prepared and lodged the 20XX income tax return without including any capital gain from the sale of the two properties. As such no choice was made to use any capital gains tax concessions.

On XX/XX/XXXX the taxpayer sought financial advice in respect of the proceeds received from the sale of the properties. At this time the taxpayer was requested to provide further information.

Covid 19 restrictions delayed the financial advisor from preparing his advice until late XX/XXXX.

It was determined through several conversations with the original tax agent by the financial advisor that an error had been made and he referred the taxpayer to the accounting practice that was part of the financial advisor's firm.

The new accountants received a copy of the contract mid XX/XXXX after they started working back in the office after Covid.

They determined that the CGT event happened when the contract was signed in XX/XXXX not when the conditions were satisfied as determined by the old accountant.

Relevant legislative provisions

Income Tax Assessment Act 1997 paragraph103-25(1)(b)

Income Tax Assessment Act 1997 paragraph118-145

Income Tax Assessment Act 1997 paragraph118-195

Income Tax Assessment Act 1997 paragraph152-80

Income Tax Assessment Act 1997 Subdivision152B

Income Tax Assessment Act 1997 Subdivision 152D

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).