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Ruling

Subject: Commissioner's discretion

Question

Will the Commissioner exercise his discretion to extend the 2 year exemption period under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

The deceased acquired the property prior to 20 September 1985.

The property was in poor condition when the deceased passed away.

Repairs to the dwelling commenced approximately 6 months after the deceased passed away.

Later, the dwelling suffered some water damage due to a storm. As a result, some repainting was undertaken. Additionally some external work was undertaken as a result of the storm.

The works were completed approximately XX months after the deceased passed away and it was decided to put the property on the market.

When the property was inspected it was found that due to another problem there was additional water damage. Consequently, additional repairs and repainting were undertaken.

The property was sold more than 2 years after the deceased passed away.

All the repair work undertaken on the property was carried out by the beneficiaries of the estate.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 118-195(1)

Reasons for decision

Subsection 118-195(1) of the ITAA 1997 states that if you are an individual who owns a dwelling in a capacity as trustee of a deceased estate, then you are exempt from tax on any capital gain made on the disposal of the property if:

· the property was acquired by the deceased before 20 September 1985, and

· your ownership interest ends within 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances).

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

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).

The deceased purchased the property prior to 20 September 1985. Due to undertaking repairs to the property, the property was not sold within 2 years of the deceased's death.

In your case, you completed a number of repairs to the property after the deceased passed away. Certain events resulted in additional damage occurring to the property. As a result further repairs were completed before the property was sold. While we acknowledge that these events delayed you selling the property, the subsequent repairs are not a necessary prerequisite for a property to be sold or prevent a property from being sold. The repairs simply enable you to maximise the value of the property. Consequently, completing repairs to the property are of a different nature to the situations in which the Commissioner can exercise his discretion where the sale of a property is unable to be completed due to reasons outside of the trustee's or beneficiary's control.

Having considered the relevant circumstances, the Commissioner will not exercise his discretion and extend the 2 year time limit.

Note:

The first element of the CGT cost base will be the market value of the property on the day that the deceased passed away. Also, you are entitled to utilise the 50% discount method to calculate the capital gain.