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Edited version of your written advice
Authorisation Number: 1012888176830
Date of advice: 2 October 2015
Ruling
Subject: Deceased Estate CGT exemption
Question 1
Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA1997) in relation to the deceased's main residence?
Answer
Yes.
Question 2
Can the concessional tax period for the deceased estate be extended?
Answer
No.
This ruling applies for the following period(s)
Year ended 30 June 2015
The scheme commences on
1 July 2014
Relevant facts and circumstances
Your parent passed away.
Due to several family illnesses and injuries, the trustees of the deceased estate were not able to immediately devote all their attention to the administration of the estate.
A contract for the sale of the main residence was signed just before the second anniversary of your parent's death and settlement occurred a short time after the two year period allowed for CGT exemption.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 118-195(1)
Income Tax Assessment Act 1936 Section 99
Income Tax Rates Act 1986 Section 12(6)
Income Tax Rates Act 1986 Schedule 10
Reasons for decision
Commissioner's discretion under subsection 118-195(1).
Subsection 118-195(1) of the ITAA 1997 allows a trustee of a deceased estate to disregard a capital gain or loss from a dwelling if:
• the property was acquired by the deceased before 20 September 1985, or
• the property was acquired by the deceased 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, and
• your ownership interest ends within two years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances).
The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion:
• 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 your submission you state that the delay in disposing of the dwelling was due to various events such as illness, accidents and other non-physical trauma that you and your family were directly involved in. We have also taken into consideration that you had a contract of sale on the property before the two year period had ended. This shows that you have made an effort to dispose of the property within two years of your parent's death.
Having considered the particular circumstances of this case, the Commissioner will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.
Extension of concessional tax period.
The general practice is to assess the income of a deceased estate trust under section 99 of the Income Tax Assessment Act 1936 (ITAA 1936) unless there is tax avoidance involved. Deceased estates of the 'ordinary and traditional' kind (whose assets come directly from the assets of the deceased) are assessed under that section.
The rates of tax for trustees assessed under section 99 of the ITAA 1936 are found in section 12(6) of the Income Tax Rates Act 1986 (ITRA 1986), which directs attention to Schedule 10 of the ITRA 1986. Part 1 of Schedule 10 of the ITRA 1986 identifies two classes of trustees for the purpose of determining the rates of tax that are to apply.
In the first class are trustees who are liable to be assessed under section 99 of the ITAA 1936 in respect of resident trust estates of a deceased person where the income is derived in the year of death of the deceased or in any one of the following two years. These trustees are liable to pay tax at the rates applicable to resident individuals.
The second class of trustees identified in Part 1 of Schedule 10 of the ITRA 1986 comprises trustees liable to be assessed under section 99 of the ITAA 1936 in respect of income of a resident trust estate, other than the estate of a person who died fewer than three years before the end of the income year.
These trustees (including the trustees of testamentary trusts) are liable to tax at the rates specified for resident individuals except that they do not benefit from the tax free threshold.
There is no discretion available to the Commissioner to extend the three year period to apply the lower rates of tax or vary the rates of tax applicable under section 99 of the ITAA 1936.
Consequently the concessional tax period for the deceased estate cannot be extended.