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Edited version of your private ruling
Authorisation Number: 1012443392627
Ruling
Subject: Capital gains tax - Deceased estate - extension of two year rule - disposal
Question:
Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time to the two year period?
Answer:
No.
This ruling applies for the following period:
Year ended 30 June 2013
The scheme commenced on:
1 July 2012
Relevant facts:
The deceased passed away after 20 September 1985.
The deceased owned property which was purchased after 20 September 1985.
Probate of the will was recently granted.
The deceased left the property to a number of beneficiaries.
One of the beneficiaries of the estate has experienced health difficulties which has prevented them attending to selling the property.
The beneficiaries of the property wish to undertake some maintenance to the property prior to sale; however this has not been possible due to the illness of one of the beneficiaries.
The beneficiaries do not wish to pay for the work to be undertaken to prepare the property for sale.
The property has been left vacant and has not been used to produce income.
Relevant legislative provisions:
Income Tax Assessment Act 1997 section 118-195
Income Tax Assessment Act 1997 Subsection 118-195(1)
Reasons for decision:
As per subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling, or your ownership interest in it, is disregarded if:
(a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and
(b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied.
Beneficiary or trustee of deceased estate acquiring interest | |||
Item |
One of these items is satisfied |
And also one of these items | |
1 |
the deceased *acquired the *ownership interest on or after 20 September 1985 and the *dwelling was the deceased's main residence just before the deceased's death and was not then being used for the *purpose of producing assessable income |
your *ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner | |
........... | |||
2 |
the deceased *acquired the *ownership interest before 20 September 1985 |
the *dwelling was, from the deceased's death until your *ownership interest ends, the main residence of one or more of: | |
|
|
(a) |
the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or |
|
|
(b) |
an individual who had a right to occupy the dwelling under the deceased's will; or |
|
|
(c) |
if the *CGT event was brought about by the individual to whom the *ownership interest *passed as a beneficiary - that individual |
In this case, when the deceased passed away, the property passed to the executors of the estate.
The two year time period to dispose of the property will expire in the relevant year. Therefore, you will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period.
The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion to extend the time period in which you can dispose of the property:
· 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 (eg 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 reasons outside the beneficiary or trustee's control.
In determining whether or not to grant an extension the Commissioner is expected to consider whether, and to what extent, the dwelling is used to produce assessable income and how long the trustee or beneficiary held it.
In this case, the delay was caused by the personal circumstances of a beneficiary of the deceased's estate. This prevented the executor from attending to the maintenance and preparing the property for sale within the two year time limit.
Having considered the relevant facts, the Commissioner is not able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit to 20XX
As a result of not extending the two year time limit, you will not satisfy any of the conditions contained in section 118-195 of the ITAA 1997. Accordingly, you can not disregard any capital gain or loss that arises as a result of the disposal of the property.