Edited version of private advice

Authorisation Number: 1051835360176

Date of advice: 10 May 2021

Ruling

Subject: CGT - rollover - destroyed assets

Question

Does the expenditure incurred by the Trust in obtaining drawings and plans, and seeking council approval is sufficient to trigger the replacement asset rollover provisions under subdivision 124-B of the Income Tax Assessment Act 1997?

Answer

No

This ruling applies for the following periods:

•   year ended 30 June 20XX

•   year ended 30 June 20XX

•   year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The property was owned and was the main residence of the deceased at the time of their passing.

The property was also the main residence of X of the deceased's children.

The deceased died during the year ended 30 June 20XX.

Probate was sought and granted to the deceased's siblings X months after their passing.

The deceased's will provided in relation to the property:

I give devise and bequeath my estate to my trustee(s) on the following trusts:

(b) my property ("the property") to be either developed depending on the feasibility studies to be done as to the maximum units that can be built on my property or if not able to be to at least obtain planning permits for the maximum units permissible on the property and then the property (all or part depending upon my X children's wishes ("my X children") to be sold with the units built or as is with a planning permit.

(c) From the proceeds of the sale of the property (all or part) after paying the mortgagee and all the reasonable costs incurred with regards to the property development that My Trustees in consultation with my children shall decide whether the property left should be kept or a new property be bought from the proceeds of the property either decision of which shall be transferred in the name of my X children as tenants in common.

The property was not developed in accordance with the will.

The dwelling on the property was destroyed by fire during the year ended 30 June 20XX.

A testamentary trust was not registered.

An insurance policy was held by the deceased's ex-spouse in relation to the property.

The ex-spouse received the insurance proceeds and the proceeds were deposited in the bank account of the Trust during the year ended 30 June 20XX.

The Trust was registered during the year ended 30 June 20XX.

The beneficiaries of the Trust are the deceased's children.

The trustees were originally the deceased's children, and during the year ended 30 June 20XX a company was appointed as trustee.

While the beneficiaries of the estate determined the action to take with the property, the Trust held the insurance proceeds in trust for them and incurred costs relating to the property on their behalf.

During the year ended 30 June 20XX the Trust began incurring costs in relation to the potential development of the property incorporating the construction of two residences. One would be used as a replacement of the main residence, the other as an investment property. The plans were placed with council for approval.

Due to issues surrounding the finalisation of the deceased's estate the replacement asset is yet to be constructed.

Relevant legislative provisions

Income Tax Assessment Act 1997 subdivision 124-B

Reasons for decision

Summary

The rollover provisions in subdivision 124-B of the Income Tax Assessment Act 1997 (ITAA 1997) are not available and are not triggered by the expenses incurred by the Trust in obtaining drawings and plans, and seeking council approval.

Detailed reasoning

Paragraph 124-70(1)(b) of the ITAA 1997 provides you may be able to choose a roll-over if a CGT asset (the original asset) you own, or part of it, is lost or destroyed.

Subsection 124-70(2) of the ITAA 1997 provides you must receive money or another CGT asset (except a car, motor cycle or similar vehicle), or both as compensation for the event happening; or under an insurance policy against the risk of loss or destruction of the original asset.

The Trust does not own the CGT asset. The CGT asset is owned by the estate of the deceased. There is no evidence the asset has ever been owned by the Trust or that there was an intention for the property to be owned by the Trust in the will of the deceased.

Further, the Trust did not receive money as compensation for the event happening or under the insurance policy against the risk or destruction of the original asset. The deceased's ex-spouse received money under an insurance policy, however they were not the owner of the asset the time of the fire.

Therefore, the rollover provisions in subdivision 124-B of the ITAA 1997 are not available and are not triggered by the expenses incurred by the Trust in obtaining drawings and plans, and seeking council approval.

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