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Edited version of your written advice
Authorisation Number: 1012744179235
Ruling
Subject: CGT - deceased estate - two year discretion
Question 1
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 to the year ending 30 June 2015?
Answer
No
Question 2
Can you disregard any capital gain or loss that arises from the disposal of the property under section 118-195 of the ITAA 1997?
Answer
No
This ruling applies for the following period:
Year ended 30 June 2015
The scheme commences on:
1 July 2014
Relevant facts and circumstances
The deceased died in early 20XX.
You were appointed as an Executor and Trustee under the deceased's Will.
One of the assets of the estate was a house (the property). The property was the principal residence of the deceased up to the date of death.
The property was acquired by the deceased and a partner (partner deceased 200X) in early 19XX.
The property remained vacant from the time of the deceased's death.
The property has not been used to produce assessable income.
In keeping with your family tradition, the property was left vacant for 12 months after the deceaseds' death.
The property was listed with Real Estate agents in mid 20XY.
You were approached by property developers who were interested in purchasing the property, if they were able to also purchase the neighbouring properties.
An agreement was made between the developers, yourself (in your capacity of Executor of the deceased estate) and the owners of the neighbouring properties. A contract was signed in late 20XY, with a settlement date in late 20XZ.
The reason for the delay in settlement was provided by the developers and included cash flow, further investigations and generally accepted practice in the construction industry.
Between mid to late 20XY you were hospitalised and you state this illness hindered the selling process as you were integral in the process of explaining the benefits of the developer's proposal to your neighbours to expedite the sale.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 118-195(1)
Income Tax Assessment Act 1997 section 118-195
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 |
You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period in which you can dispose of the property.
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 your case, the delay was not caused by complexity of the deceased's estate, there were no challenges to Will. It is also not considered that your ill health, which arose outside the two year period, was the cause of the delay, nor did the settlement of a contract of sale fall through for reasons outside your control.
The delay in the disposal of the property is considered to be within your control as Executor of the Estate. You chose to wait for the developer to obtain agreement from the neighbouring properties to sell their property to the developer, in order for the developer to agree to purchase your property. You had the option of looking for an alternative purchaser and disposing of the property within the two year period.
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 dd/mm/yyyy.
As a result, you will not satisfy all of the conditions contained in section 118-195 of the ITAA 1997. Accordingly, you cannot disregard any capital gain or loss that arises as a result of the disposal of the property.