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Edited version of private advice
Authorisation Number: 1051617299489
Date of advice: 14 January 2020
Ruling
Subject: Deceased estate
Questions and answers
- Will the Commissioner exercise 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?
Yes. For the reasons you have given, the delay caused by protracted litigation, the Commissioner has exercised discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allowed an extension of time to the two year period until the settlement date.
- Is the Estate of person A liable to pay capital gains tax on its distribution from the Estate of the person B?
No. For the reasons you have given, the dwelling was person D's main residence at the time of their death (because of their right of occupancy under person B's will) when person A's interest in the Property passed to their estate. Therefore, the main residence exemption will apply to person A's estate to disregard any capital gain made upon the distribution from the B's estate.
This ruling applies for the following period:
Income year ended 30 June 2019
The scheme commences on:
1 July 2018
Relevant facts and circumstances
Person A died made a will.
Person A died. Probate was granted to the executors. You have supplied a copy of the grant of probate.
One of the assets of person A's estate was an interest in a property of the late person B being a half share in the property (the Property). The Property:
- Had been the main residence of the person B until their death.
- The Property is less than two hectares.
- The Property was acquired prior to 20 September 1985.
- The Property was never used to produce income.
Upon death, person B bequeathed the Property to their two children:
- 50% of the Property to person C, the spouse of the person A. Person C died.
- 50% to person D. Person D died, which was after the death of person C but prior to the death of person A. Person D was also granted a life interest to reside in the Property until their death. The property was their main residence until their death.
Shortly after person D's death, the spouse of person D commenced legal proceedings against the executors of person A's estate, claiming that the whole of the Property belonged to the spouse or person D. You have supplied a copy of the Statement of Claims.
The proceedings were finally settled. You have supplied a copy of the judgement orders whereby it was agreed that the Property would be sold by the trustee for person B's estate. The spouse of person D vacated the Property.
On instructions from the trustee for person B's estate, the Property was listed for sale and was subsequently sold. Person A's estate was entitled to the sum of $X, being 50% of the net proceeds of sale after administration and fees. The sale contract was entered into and settlement took place in early 2019.
The dwelling was not disposed of within two years of the date of the deceased's death due to the protracted litigation.
A distribution was made from person B's estate to person A's estate.
You consider that capital gains tax does not apply as person A's estate for the cash distribution from the person B's estate and had no interest in the Property but rather had an interest in person B's unadministered estate.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 118-195(1)
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 108-5
Income Tax Assessment Act 1997 Subdivision 115-C
Income Tax Assessment Act 1997 Section 115-200
Income Tax Assessment Act 1997 Section 128-10
Income Tax Assessment Act 1997 Subsection 128-15