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Edited version of your written advice
Authorisation Number: 1012912025919
Date of advice: 13 November 2015
Ruling
Subject: Capital gains tax
Question and answer
Will the Commissioner exercise his discretion to extend the 2 year period under section 118-195 of the Income Tax Assessment Act 1997?
Yes.
This ruling applies for the following periods:
Year ended 30 June 2014
The scheme commenced on:
1 July 2013
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 died a number of years ago.
The deceased purchased the property post 1985.
The property was used as the deceased's main residence until they entered a care facility.
The property continued to be treated as the deceased's main residence until their death.
The property was rented out for more than 6 years.
Settlement of the property occurred in the relevant income year.
The reasons for the property being sold outside the two year time period are as follows:
• The deceased died without a will
• The estate was complex
• An application for letters of Administration to be granted
• Beneficiaries needed to be located
• Delay in beneficiaries providing relevant documentation to the courts for the granting of Administration
• Difficulty in obtaining proof of marriages and divorces in multiple states
• Major structural repairs were required to be undertaken on the property before it could be listed for sale
• Caveats were placed on the property and needed to be removed before settlement could take place
The delays were outside the control of the estate.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 118-195(1).
Reasons for decision
A capital gain or capital loss is made as a result of a capital gains tax (CGT) event happening to a CGT asset (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)). The most common CGT event is CGT event A1 the disposal of a CGT asset.
Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that if 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, then you are exempt from tax on any capital gain made on the disposal of the property acquired by the deceased after 20 September 1985 if:
• the property was the deceased's main residence just prior to their death
• it was not being used to produce assessable income at this time, and
• Your ownership interest ends within 2 years of the deceased's death.
You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed).
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 (for example, 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 circumstances 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 there were significant delays in selling the property due to the deceased not having a will, delays in locating beneficiaries, Letters of Administration being granted, major repairs required to be carried out on the property, searches for previous marriage and divorce documentation and the removal of caveats on the property.
The property had been rented out for more than 6 years.
The Commissioner will exercise his discretion to extend the 2 year time limit to the settlement date as the circumstances relating to the delay in the sale of the property were beyond the estates control.
Accordingly, the sale of the property will be exempt from CGT pursuant to section 118-115 of the ITAA 1997.