Edited version of your written advice

Authorisation Number: 1012921072662

Date of advice: 2 December 2015

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) in relation to Interest A and allow an extension of time until the date the property was sold?

Answer

Yes.

Question 2

Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to Interest B and allow an extension of time until the date the property was sold?

Answer

Yes.

Question 3

Is the period from the date of Sibling E's death to the date of the deceased's death counted among the non-main residence days for the purpose of calculating the partial exemption in relation to Interest B?

Answer

Yes.

Question 4

Is the period from the date of the deceased's death to the date of Sibling H's death counted among the non-main residence days for the purpose of calculating the partial exemption in relation to Interest B?

Answer

No.

Question 5

Is the period from the date of Sibling H's death to the date of settlement of the property counted among the non-main residence days for the purpose of calculating the partial exemption in relation to Interest B?

Answer:

Yes.

This ruling applies for the following period

Year ended 30 June 2015

The scheme commences on

Before 20 September 1985

Relevant facts and circumstances

The deceased acquired two separate one-third interests in the property.

The deceased's first, one-third interest (Interest A), was acquired when the deceased's parent died before 20 September 1985 and the property was left in equal shares to:

• the deceased;

• Sibling E; and

• Sibling H, including life tenancy of the dwelling on the property.

The deceased's second one-third interest (Interest B) was acquired upon Sibling E's death after 20 September 1985.

The dwelling on the property was Sibling E's principal place of residence for all of their ownership period until their death.

Sibling E's will, did not provide Sibling H with a right to occupy the dwelling on the property.

The dwelling on the property was Sibling H's principal place of residence for all of their ownership period until their death.

Sibling H left their one-third interest to a relative.

The deceased passed away leaving their two-thirds interest to their trustees upon trust for the maintenance of Sibling H's life tenancy and after Sibling H's death to non-related beneficiaries.

The deceased never lived in the dwelling on the property.

The property was held by you as Trustees of the Estate from the date of the deceased's death until its eventual sale. The property was therefore held by you for more than eight years.

You have made a capital gain on the sale of the property.

The delay in selling the property was solely due to the legal impediment to sale presented by Sibling H's life tenancy.

The property was marketed in as efficient manner as soon as practicable following Sibling H's death.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Subsection 118-130(3)

Income Tax Assessment Act 1997 Section 118-195

Income Tax Assessment Act 1997 Section 118-200

Income Tax Assessment Act 1997 Section 118-205

Reasons for decision

Question 1

Summary

The Commissioner will exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to Interest A and allow an extension of time until the date the property was sold.

Detailed reasoning

The capital gains provisions allow for concessional treatment to be given to a dwelling that was owned by a deceased person if the executors of the deceased person's estate sell that dwelling within two years of the date of death.

Any capital gain or capital loss made on the sale of such a dwelling is disregarded if the dwelling was:

• Acquired by the deceased before 20 September 1985, or

• The deceased's main residence when they died

The Commissioner has the discretion to extend the two year period. This extension is generally only granted where the executors are merely arranging the orderly sale of the dwelling and the cause of the delay is beyond their control (for example, if the will is challenged). There must not be any other factors mitigating against exercising it.

In this case, the deceased acquired Interest A before 20 September 1985. However, you were legally prohibited from selling the property until the death of life tenant, Sibling H. As a result of this legal impediment, the sale of the property could not be completed until well after the two year deadline expired.

Following Sibling H's death you promptly progressed toward completing the orderly sale of the property. Therefore, the Commissioner accepts that it is appropriate to grant the extension that you have requested.

Question 2

Summary

The Commissioner cannot exercise his discretion under subsection 118-195(1) of the ITAA 1997 in relation to Interest B in the property and cannot allow an extension of time until the date the property was sold.

Detailed reasoning

The deceased acquired Interest B after 20 September 1985 and never lived in the dwelling on the property; as such it was never the deceased's main residence. Therefore, the full exemption under subsection 118-195(1) described in Question 1 does not apply in regard to Interest B in the property.

Question 3

Summary

The period from the date of Sibling E's death to the date of the deceased's death is counted among the non-main residence days for the purpose of calculating the partial exemption in relation to Interest B.

Detailed reasoning

As you do not qualify for a full exemption from CGT in relation to Interest B, you are entitled to a partial exemption calculated as follows:

As the deceased acquired Interest B after 20 September 1985 'non-main residence days' in relation to Interest B is the sum of:

• the number of days in the deceased's ownership period when the dwelling was not the deceased's main residence; and

• the number of days in the period from the death until your ownership interest ends when the dwelling was not the main residence of:

• a person who was the spouse of the deceased (except a spouse who was permanently separated from the deceased); or

• an individual who had a right to occupy the dwelling under the deceased's will; or

• you, as a beneficiary, if you disposed of the dwelling as a beneficiary.

'Total days' in relation to Interest B is the number of days in the period from when the deceased acquired the interest until you, as Trustees of the Estate disposed of your ownership interest.

In this question, we are only considering the period that the deceased was the owner of Interest B for capital gains purposes.

The dwelling was not the deceased's main residence during any part of this period. Therefore, the period from the date of Sibling E's death to the date of the deceased's death is counted among the non-main residence days.

Note: the use of the dwelling by any other person as their main residence during this period is not a relevant factor in determining this outcome.

Question 4

Summary

The period from the date of the deceased's death to the date of Sibling H's death is not counted among the non-main residence days for the purpose of calculating the partial exemption in relation to Interest B.

Detailed reasoning

In this question, we are only considering the period that you were the owner of Interest B for capital gains purposes and Sibling H was residing in the dwelling.

The dwelling was the main residence of life tenant, Sibling H during the period from the date of the deceased's death to the date of Sibling H's death. As Sibling H occupied the dwelling under the deceased's will, this period is not counted among the non-main residence days.

Question 5

Summary

The period from the date of Sibling H's death to the date of settlement of the property is counted among the non-main residence days for the purpose of calculating the partial exemption in relation to Interest B.

Detailed reasoning

In this question, we are only considering the period after Sibling H passed away that you were the owner of Interest B for capital gains purposes.

Upon Sibling H's death the dwelling was no longer the main residence of an individual listed in Question 3. Therefore, the period from the date of Sibling H's death to the date of settlement of the property is counted among the non-main residence days.