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Edited version of your written advice
Authorisation Number: 1051205914237
Date of Advice: 22 March 2017
Ruling
Subject: Capital gains tax - deceased estate - two year extension
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?
Answer
Yes.
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
Yes.
This ruling applies for the following period
Year ending 30 June 2017
The scheme commences on
1 July 2016
Relevant facts and circumstances
The deceased died in 2013.
A property forms part of the estate.
The property was acquired by the deceased prior to 20 September 1985.
The dwelling was the deceased's main residence until the time of death.
The property was not used for the purpose of producing assessable income.
The trustees of the estate entered into a sale agreement with a developer in early 2014 for the sale of the property, however this agreement fell through.
Negotiations commenced with a new developer in September 2014, and a sale agreement was entered into in January 2015 for the sale of the property.
The trustees of the estate requested settlement in 2015, however as the sale agreement is subject to the purchaser obtaining Development Approval (DA), settlement has been delayed.
The purchaser has indicated that the DA may not be received until early 2016. Settlement under the sale agreement is no more than 45 days from receipt of the Development Approval from the relevant authority.
Settlement did not occur in early 2016 as previously indicated.
The DA of the development application was granted and the property settled in 2017
Relevant legislative provisions
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 (e.g. 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.
The relevant facts were considered and 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, you will satisfy all of the conditions contained in section 118-195 of the ITAA 1997. Accordingly, you can disregard any capital gain or loss that arises as a result of the disposal of the property.