Edited version of private advice

Authorisation Number: 7915138533804

Date of advice: 16 September 2020

Ruling

Subject: Capital gains tax and extension of time

Question 1

Will the Commissioner exercise his discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time limit to x November 20xx in relation to the capital gains tax (CGT) event?

Answer

Yes.

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.

Question 2

Did CGT event A1 occur in relation to both the properties when the statutory trustees for sale were appointed?

Answer

Yes.

The Court Order made on x November 20xx caused a change of ownership in circumstances where two CGT events need to be considered:

·         CGT event A1 about changes of ownership, and

·         CGT event E1 about creating a trust over an asset.

Subsection 104-10(1) of the ITAA 1997 provides that CGT event A1 happens if you dispose of a CGT asset. ATO ID 2009/129 Income Tax: Capital gains tax: land vested in a statutory trustee for sale, CGT event A1 or CGT event E1?, states that the making of the court order effects a disposal of the property from the joint owners to the trustees for sale by operation of the law. Therefore, CGT event A1 happens for each joint owner.

ATO ID 2009/129 also explains that CGT event E1 under section 104-55 of the ITAA 1997 does not occur when a court order effects a disposal of the property from the co-owners to the trustees. This is because section 104-55 of the ITAA 1997 states that CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement (but not by the making of a court order).

Question 3

Are the capital proceeds in accordance with Division 116 of the ITAA 1997 for the CGT event referred to above the share of the net proceeds received from the statutory trustees for sale?

Answer

Yes.

A capital gain will be made as a result of CGT event A1 happening if the capital proceeds from the event are more than the asset's cost base. In accordance with subsection 116-20(1) of the ITAA 1997, the capital proceeds for the event are the total of the money you receive, or are entitled to receive, in respect of the event happening and the market value of any other property you receive, or are entitled to receive in respect of the event happening.

ATO ID 2009/129 states:

"On the making of the court order each co-owner's interest in realty is converted to personalty. It is expected that the market value of this property will equate to the share of net proceeds received."

Therefore, the capital proceeds for the CGT event referred to above are the share of net proceeds received from the statutory trustees for sale.

This ruling applies for the following period:

Year ending 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

The deceased was born on xx August 19xx.

The deceased was married.

On or about xx April 19xx, a Partnership of deceased and spouse was formed (the Partnership).

The Partnership operated boarding houses. The properties that the Partnership operated the boarding houses in were not owned by the Partnership.

In 19xx, the deceased and spouse purchased Property A and Property B as tenants in common.

The deceased passed away on xx April 20xx.

After the deceased's passing, both the properties formed a part of the Estate.

The executors could not sell the Estate's interest on the two properties without consent of deceased's spouse who owned the remainder of both properties as a tenant in common.

On xx April 20xx, deceased's spouse filed the Initiating Application made to the Family Court of Australia. In the proceedings in the Family Court of Australia, the deceased's spouse was claiming 100% of Property A and Property B and the remainder of the Estate.

On xx July 20xx, probate was granted on the deceased's Will and executor of the Estate was appointed.

The Executor was the respondent to the Family Court of Australia proceedings and engaged a solicitor to represent the Executor in the Family Court of Australia proceedings.

On x July 20xx, the ATO issued a private ruling and ruled that the Estate is entitled to apply the small business CGT concessions in Division 152 of the ITAA 1997 in the same way that the deceased could have immediately before the time of his passing in relation to both the properties, provided the ownership interest is disposed of within 2 years of the date of the deceased's passing (or a longer time as allowed by the Commissioner).

On xx April 20xx, the Family Court of Australia ordered that the deceased's spouse's Initiating Application filed on xx April 20xx be dismissed for want of prosecution.

On xx May 20xx, the Executor issued a letter of demand to the deceased's spouse of his intention to sell both the properties and threatening proceedings to appoint statutory trustees for sale if no agreement was reached.

Between July and August 20xx, statutory trustees were obtained and affidavits were sworn.

On xx September 20xx, Summons for Orders appointing the statutory trustees were filed.

On x October 20xx, a directions hearing took place.

On xx October 20xx, another directions hearing took place. No cross summons was filed.

On x November 20xx, a hearing took place at the Supreme Court. The deceased's spouse agreed to orders appointing Trustees of Property A and Property B for sale. Judgement was made and entered (Court Order).

On xx December 20xx, the Judgement/Order was issued.

On xx February 20xx, the Trustees were registered as the proprietors of Property A and Property B.

Between February and May 20xx, the Trustees marketed both properties. The auction date was xx May 20xx. The Trustees postponed the sale.

Both properties were also subject to auction on x June 20xx. However, the properties did not sell.

Contract of sale for both properties was exchanged on xx June 20xx.

Relevant legislative provisions

Division 116 of the Income Tax Assessment Act 1997

Division 152 of the Income Tax Assessment Act 1997

Section 104-55 of the Income Tax Assessment Act 1997

Subsection 104-10(1) of the Income Tax Assessment Act 1997

Subsection 116-20(1) of the Income Tax Assessment Act 1997

Subsection 152-80(3) of the Income Tax Assessment Act 1997

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