Edited version of private advice

Authorisation Number: 1051806257784

Date of advice: 17 February 2021

Ruling

Subject: CGT - deceased estate - Commissioner's discretion to extend two year period

Question 1

Did the property maintain its pre-CGT status upon transfer to the deceased upon the death of their late spouse after 20 September 1985?

Answer

No.

Question 2

Will the Commissioner allow an extension of time for you to dispose of your ownership interest in the dwelling and disregard the capital gain you make on the disposal?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2019

Year ended 30 June 2020

Year ending 30 June 2021

The scheme commences on:

1 July 2018

Relevant facts and circumstances

The deceased passed away during the year ended 30 June 2019.

The deceased and their spouse purchased the property after their marriage in the 1950's as their family home.

The title of the property was solely in the spouse's name.

The deceased and their spouse lived in the property as their main residence from purchase until both of their passing.

The property is over two hectares.

The spouse passed away after 20 September 1985, the title of the property passed to the deceased as a beneficiary of the spouse's Will.

Probate was granted on the deceased's estate 10 months after the deceased's death.

The deceased's two adult children are the executors and beneficiaries of the estate.

The property was prior to the death of the deceased and continued to be until the sale of the property the main residence of one of the executors.

The property has not been leased or used to produce an income.

Negotiations began in early 2019 to sell the property to a company. The negotiations were very lengthy due to the company being a large corporation.

Settlement was completed approximately 2.5 years after the deceased's death.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-120

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 section 118-255

Income Tax Assessment Act 1997 section 128-20

Income Tax Assessment Act 1997 section 128-50

Reasons for decision

Question 1

Summary

The deceased acquired the property after the introduction of CGT therefore the property is no longer a pre-CGT asset.

Detailed reasoning

In general, you acquire a CGT asset when you become its owner. In this case the time when you acquire the asset is when you become its owner.

Paragraph 128-20(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a CGT asset passes to a beneficiary in your estate if the beneficiary becomes the owner of the asset under your will.

The deceased acquired the property as a beneficiary of their late spouse's will after their death. Therefore, the date the deceased acquired the property is the date of the spouse's death, which was after the introduction of CGT on 25 September 1985.

Even if the deceased had been on the title as a joint tenant of the property from the date of purchase pre-CGT only 50% of the property would remain a pre-CGT asset, as in accordance with subsection 128-50(2) of the ITAA 1997 the surviving joint tenant is taken to have acquired (on the day the individual died) the individual's interest in the asset.

Therefore, the maximum area that is exempt from CGT under the main residence exemption is two hectares in accordance with sections 118-115, 118-120, 118-195 and 118-255 of the ITAA 1997.

Question 2

Summary

Having considered your circumstances and the relevant factors, the Commissioner will allow an extension of time.

Detailed reasoning

Granting of an extension for not disposing of the property within two years generally depends on relatively exceptional circumstances outside of your control.

Exceptional circumstances outside your control will occur where you satisfy the following conditions:

•   during the first two years after the deceased's death, more than 12 months was spent addressing one or more of the four 'circumstances that took more than 12 months to resolve'

•   the dwelling was listed for sale as soon as practically possible after none of those circumstances were any longer an impediment (and the sale was actively managed to completion)

•   the sale completed (settled) within 12 months of the dwelling being listed for sale

•   if any 'circumstances that can't be material to delays in disposal' were applicable, they did not materially contribute to the delay in your sale.

One or more of the following circumstances must have taken more than 12 months to address:

•   the ownership of the dwelling or the Will, is challenged

•   a life or other equitable interest given in the will delays the disposal of the dwelling

•   the complexity of the deceased estate delays the completion of administration of the estate

•   settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of your control.

To qualify for the extension, none of the following circumstances can have been material to the delay in disposing of your interest:

•   waiting for the property market to pick up before selling the dwelling

•   delay due to refurbishment of the house to improve the sale price

•   inconvenience on the part of the trustee or beneficiary to organise the sale of the house

•   unexplained periods of inactivity by the executor in attending to the administration of the estate.

In your case you met all the exceptional circumstances, more than 12 months was spent negotiating the sale of the property to the company and none of the circumstances that can't be material to the sale apply. Therefore, the Commissioner will allow an extension of time to dispose of your interest in the property.

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