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Edited version of your private ruling
Authorisation Number: 1012456142142
Ruling
Subject: Capital gains tax - deceased estate -Commissioner's discretion
Question:
Will the Commissioner exercise his discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) in your particular circumstance?
Answer:
No.
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
The deceased acquired their main residence (the property) after 20 September 1985.
The deceased died nearly two years ago.
You are the trustee of the deceased's estate.
You are also a beneficiary of the deceased's estate
Probate was granted shortly after the deceased's date of death.
The property has never been used to produce assessable income during the deceased and your ownership period as trustee of the estate.
The property has been valued at $X.
The property has been on the property market for more 12 months after getting it into suitable condition for sale.
You have over the period the property has been on the market reduced the price by over a specified amount.
You have been advised by local real estate agents that the property is priced realistically but the top end of the market has been affected by the slow down due to tough market conditions.
The estate has been complicated to administer with the suspicion of a possible challenge delaying the administration by the required period from the grant of probate in which a challenge has to be made.
There has also been an estate liability which has been difficult to ascertain - a loan, which was under investigation by an ombudsman service.
Currently the property will realise a significant price lower than the value declared for probate due to the drop in the property market.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 118-195
Income Tax Assessment Act 1997 Section 118-200
Reasons for decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
Due to recent changes to section 118-195 of the ITAA 1997, the Commissioner now has discretion to extend the two-year period in the Act where:
· the ownership of a dwelling or 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 unforseen 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 for sale over the dwelling is unexpectedly delayed or falls through for circumstance ousted the beneficiary or trustee's control.
In your situation, even though you have priced the property realistically you have been unable to dispose of it because the property market has been affected by the slowdown due to tough market conditions.
Based on the information you have provide, we believe that you do not meet the criteria in which the Commissioner may exercise his discretion to extend the two-year period in which a deceased's main residence must be dispose of.
Therefore, the Commissioner does not consider that it is appropriate to exercise his discretion to extend the two-year period in which a deceased's main residence must be dispose of.
The normal capital gains tax (CGT) rules will apply to the disposal of the property.
CGT
The most common CGT event, CGT event A1 occurs when you dispose of an asset to another entity. The time of the event is when you enter into the contract for sale, if there is no contract - when the change of ownership occurs.
You make a capital gain if the capital proceeds from the CGT event are more than the asset's cost base. You make a capital loss if your reduced cost base is greater than your capital proceeds.
CGT is not payable on a capital loss. A capital loss is applied to a capital gain made or can be carried forward and applied to any future capital gain made.
Deceased estate - main residence
Special rules apply if the asset was the deceased person's main residence. If you inherit a deceased person's property, you may be exempt or partially exempt when a CGT event occurs to it.