Edited version of private advice

Authorisation Number: 1051264967441

Date of advice: 14 August 2017

Ruling

Subject: Request for the Commissioner to extend the 2 year period to dispose of a dwelling.

Question 1

Do the two residential units of accommodation transferred to you under the deceased's estate constitute one 'dwelling' as defined in section 118-115 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

Question 2

Will the Commissioner exercise his discretion under subsection 118-195(1) of ITAA 1997 and allow an extension of time to the two year period?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2017

The scheme commences on:

1 July 2016

Relevant facts and circumstances

The deceased and deceased's spouse acquired two pre CGT residential units of accommodation as joint tenants.

The two residential units of accommodation are contained on the one title.

The front unit of accommodation consisted of six bedrooms, two undercover garages, a detached rumpus garage and additional car parking spaces (front unit).

The rear unit of accommodation consisted of three bedrooms, was self-contained and physically separated from the front unit of accommodation (rear unit).

The two units of accommodation are physically separated from each other, but are not fenced and car parking is shared. Both units were used as a single residence by the very large extended family.

The deceased's spouse passed away in March 2006.

The deceased passed away in April 2012 (the deceased).

The front unit of accommodation was the deceased's main residence.

Power and water supplied to both units of accommodation was delivered via one meter and was paid by the deceased. The deceased also paid the Council rates and water rates.

The deceased's will appointed seven beneficiaries.

Four of the seven beneficiaries were interested in individually purchasing the property from the remaining beneficiaries, and various offers were made to purchase the units. The first offer was made in December 2013, but was considered to under-valued and the beneficiaries were unable to reach agreement in relation to the purchase price of the units.

Offers submitted by some beneficiaries to the other beneficiaries continued to be made from February 2014 for around 15 months, but were held to be unreasonable and not accepted by the beneficiaries, resulting in conflict between the beneficiaries.

Two of the deceased's children, both beneficiaries of the deceased's estate, commenced legal action in the Supreme Court NSW in early 2015 to force the other beneficiaries to sell the deceased's units of accommodation.

Two children of the deceased were the first and second plaintiff's in legal proceedings instigated against the other five defendant beneficiaries seeking orders under Division 6 of Part IV of the Conveyancing Act 1919 to enforce the sale of the units of accommodation via public auction.

Instead of commencing formal court proceedings in June 2015, the case was stood over until July 2015 so the parties to the legal proceedings could enter into consent orders.

The parties to the legal proceedings agreed that instead of appointing public trustees or for the property to vest in Trustee upon the Statutory Trust for sale under Division 6 of Part IV of the Conveyancing Act 1919, the property would be sold via public auction.

Agreed consent orders were entered into by the parties to the legal proceedings in late 2015.

The units of accommodation were auctioned in late 2015 and settlement occurred in early 2016.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 subsection 118-115

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 subsection 118-195(1)

Reasons for decision

Question 1

Summary

Given the proximity and integration of activities that occurred between the two units of accommodation, the front and rear units of accommodation are considered a 'dwelling' for the purposes of section 118-115 of the ITAA 1997.

Detailed reasoning

Taxation Determination TD 1999/69 allows for the term 'dwelling' as defined in section 118-115 of the ITAA 1997 to include more than one unit of accommodation.

Whether two or more units of accommodation are used together as one place of residence or abode for the purposes of the definition of 'dwelling' is a question of fact that depends on the particular circumstances of each case.

TD 1999/69 also states that the relevant factors when considering whether units of accommodation are used together as one place of residence or abode include:

1. whether the occupants sleep, eat and live in them
2. the distance between and the proximity of the units of accommodation
3. whether the units are connected
4. whether the units are capable of being sold separately
5. the extent to which the daily activities of the occupants in the units are integrated
6. how the units are shared by the occupants, and
7. how costs of the units are shared by the occupants.

In your circumstances, the integration of activities that occurred between the front and rear units of accommodation included the following:

• At the time of the deceased's death, the deceased lived in the front unit with some of adult children.
• Both units of accommodation were fully self-contained and were physically separated from each other. Car parking spaces and outdoor areas were shared spaces and used by occupants of both units of accommodation.
• The front unit was occupied by the deceased, the deceased's spouse and children. Most of the adult children resided in the rear unit so they could continue to be close to their younger siblings and parents. Some of the adult children for economical reason's resided in the rear unit particularly when undertaking studying, preparing to buy a home or get married.
• The youngest child and child's spouse and other siblings resided with their ailing parents during periods of ill health and prior to the deceased's passing.
• The children residing in the front and rear units socialised, shared meals daily in the front unit of accommodation and assisted their parents with their personal care and accessing health services. The children undertook the shopping for their parents, prepared food and dined as a family unit in front unit.
• The deceased paid for all the utility costs associated with operating both units. Water and power was supplied to both units via one meter. The deceased also paid the Council rates and water rates.

Having regard to the above factors and the proximity and integration of activities that occurred between both units of accommodation, the front and rear units are considered 'a 'dwelling' for the purposes of section 118-115 of the ITAA 1997.

Question 2

Summary

The Commissioner will exercise his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time for the disposal of the two units of accommodation.

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 ordinary 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.

The delay in disposing of the dwelling was caused by unexpected delays in the settlement of the dwelling for reasons outside the beneficiary or trustee's control and these delays prevented you from disposing of the dwelling within the two year time limit.

The Commissioner accepts that it is appropriate to grant the short extension that you have requested.