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Edited version of your written advice
Authorisation Number: 1051467472598
Date of advice: 14 February 2019
Ruling
Subject: Capital gains tax – extension of time
Question
Will the Commissioner exercise his discretion to extend the two year period under section 118-195 of the Income Tax Assessment Act 1997 for a property?
Answer
No
This ruling applies for the following period:
Year ending 30 June 2019
The scheme commences on:
1 July 2018
Relevant facts and circumstances
The deceased died in the 201X income year.
The property was purchased by the deceased in 196X.
The property was the deceased’s main residence until their death in the 201X income year.
The property was less than two hectares.
Probate was granted in the 201Y income year.
The deceased’s children were appointed as trustees and beneficiaries as per the Will.
The Will states:
● Any decisions by my Trustees must be unanimous.
● Where my trustees cannot make a unanimous decision, the following shall apply in all matters such as investment of the Trust Fund, the administration of the Trust and distributions of income and capital under this Trust the Trustee shall act by unanimous vote, but in the event of disagreement, the Trustee can act by majority vote.
In the event that a majority cannot be reached then all of my trustees must place their names in a hat and the decision voted for by the Trustee whose name is first drawn from the hat shall be the decision that shall prevail and shall be binding on the Trustees (The Top Hat Rule).
The property was not rented out prior to their death or after their death.
The property was sold in the 2019 income year.
The delay in selling the property within the two year time period was due to one of the trustees and beneficiaries going through a marriage breakdown and ill health of their spouse at the time. This caused discourse among the other beneficiaries and caused delays to the administration of the estate.
The trustees chose not to use the ‘Top hat Rule’ available under the Will to make decisions in relation to the property.
The property was placed on the market in the 2018 income year and sold in the 2019 income year.
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 ITAA 1997 provides that a trustee of a deceased estate disregards a capital gain or loss from a dwelling that a deceased person acquired before 20 September 1985 if:
(1) the trustee’s ownership interest ends within two years of the deceased’s death, or
(2) from the deceased’s death until the trustee’s ownership interest ends, the dwelling was the main residence of one or more of the following persons:
(a) the spouse of the deceased immediately before death; or
(b) an individual who had the right to occupy the dwelling under the deceased’s Will; or
(c) an individual who brought about a CGT event where the ownership interest in the dwelling passed to the same individual as a beneficiary.
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.
One of the trustees was going through a marriage break down and the property was not sold for a number of years after the deceased died.
While the Commissioner is sympathetic to the circumstances experienced by the trustee, the reasons provided are not beyond the trustees control in terms of administrating the estate and placing the property on the market.
Provision was made in the will ‘The Top hat Rule’ for decisions to be made in relation to the trust property and this provision was not exercised.
The Commissioner will not exercise his discretion to extend the two year time limit to the settlement date as the circumstances relating to the delay in the sale of the property was not beyond the estates control.