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Edited version of your written advice
Authorisation Number: 1012809323986
Ruling
Subject: Capital Gains Tax
Question 1
Will any capital gain made on the disposal of the property be disregarded?
Answer
Yes.
Question 2
Does The Estate need to withhold tax on the capital gain made before distributing to the beneficiaries?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2014
The scheme commences on
1 July 2013
Relevant facts and circumstances
A and B purchased the property in XXXX as tenants in common with equal shares.
A was registered on title as tenant in common as to one of a total of two equal undivided shares.
B was registered on title as tenant in common as to one of a total of two equal undivided shares.
A left B a life interest in their half share of the property.
A died in XXXX.
The title to the property was registered in the remainder beneficiaries' names personally, as equal shares as tenants in common, in respect of A's share.
C was a beneficiary of B's half share as tenants in common in equal shares.
B continued to reside at the property until their death.
C lived in the residence after B's death with their partner.
C's partner agreed to purchase the remaining half share interest in the property held by the remainder beneficiaries as tenants in common in equal shares.
The contract of sale was dated XXXX.
The settlement date was XXXX.
The property was never used to produce income.
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 |
Application to your circumstances
In this case, when A died the property passed to the remainder beneficiaries and as per the Will, B had a life interest in the property until death. The property was not used to produce assessable income and it was the A's main residence prior to death.
The remainder beneficiaries will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period in which they 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 this case, the delay was caused by the complexity of the deceased's estate. The sale of the property could not occur until the expiration of the life interest. This prevented the beneficiaries from disposing of the property within the two year time limit. The property was never used to produce assessable income.
Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.
As a result of extending the two year time limit, the remainder beneficiaries will satisfy all of the conditions contained in section 118-195 of the ITAA 1997. Accordingly, the remainder beneficiaries can disregard any capital gain or loss that arises as a result of the disposal of the property.
As the capital gain has been disregarded under section 118-195 of the ITAA 1997 there is no requirement for the estate to withhold any tax.