Edited version of private advice

Authorisation Number: 1051621767923

Date of advice: 18 December 2019

Ruling

Subject: Capital gains tax - Commissioner's discretion to extend the two year period

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 for you to dispose of Person B's ownership interest in the Property?

Answer:

Yes. Having considered your circumstances and the relevant factors, the Commissioner will allow an extension of time.

Further information about this discretion can be found by searching 'QC 52250' on www.ato.gov.au

Question 2:

Will the Commissioner exercise his discretion under subsection 118-200(3) of the ITAA 1997 and allow an extension of time to the two year period for you to dispose of Person A's ownership interest in the Property?

Answer:

Yes. Having considered your circumstances and the relevant factors, the Commissioner will allow an extension of time.

This ruling applies for the following periods

Income year ending 30 June 2020

Income year ending 30 June 2021

The scheme commences on

1 July 2019.

Relevant facts and circumstances

Your parents, Persons A and B, purchased a property (the Property) prior to 20 September 1985 as tenants in common.

The Property was Person A and B's main residence.

One third of the Property was rented out by an unrelated party for numerous years prior to Person A passing away.

In accordance with Person A's will, their ownership interest in the Property was transferred to Person B (Person A's ownership interest).

Your sibling (Person C) moved into the Property with Person B.

Person B moved into a nursing home and made an absence choice in relation to the Property.

Person B (the Deceased) passed away a number of months after they had moved into the nursing home (Person B's ownership interest).

You and Person C were appointed as the Executors of the Deceased's estate.

The tenant renting one third of the Property moved out shortly after the Deceased had passed away (after a number of weeks).

The Property is zoned R3 Medium Density Residential which enables apartment complexes constructed up to 12.5 metres in height.

The Property was not refurbished to prepare it for sale.

The Property was not put on the market, however you and Person C were approached by a property developer (Company X) a number of months after the passing of the Deceased who expressed that they wished to purchase the Property in conjunction with a property located at the rear of the Property (Property A) for the purpose of creating a large development site with good site access.

Probate on the Deceased's estate was granted a number of months after the Deceased had passed away.

The title of the Property was transferred into your name and Person C's name as beneficiaries of the Deceased's estate a number of months after probate was granted.

Offer - Company X

During the month after the title had been transferred into your name and Person C's name, a letter of offer was made on behalf of Company X to purchase the Property using a call option arrangement, with the offer being valid for a specified period of time.

You and Person C accepted Company X's offer and engaged legal representatives to obtain a planning certificate from the local council and draft up a Call Option Deed which were sent to Company X's legal representatives after the period that the offer was valid had ended, with a copy draft sale of contract and planning certificate attached.

The offer from Company X did not proceed after its plans to purchase Property A did not progress.

You and Person C were not aware that Company X was not proceeding with their offer until you received another offer to purchase the Property from another developer.

Ist Offer - Company Y

A number of months after Company X had made their offer; you received an offer from Company Y to purchase the Property for a lesser transfer amount than had been offered by Company X under a call option arrangement.

Company Y had reached an agreement to purchase Property A the previous day for the purpose of creating a large development site with good access.

Renegotiated Company Y offer

Following further negotiations over a number of weeks the purchase price was renegotiated to a higher transfer price under a call option arrangement, with the offers, refusals and negotiations being made verbally either face to face, or via telephone conversations.

You and Person C had sought a shorter settlement period to ensure that that latest date for settlement would be within the two year period following the Deceased date of death. However, Company Y had wanted a longer settlement period to enable them to have time to prepare and lodge development applications with the local council, obtain pre-sales and obtain development finance prior to settlement occurring.

You sought advice on the taxation implications that would occur on the sale of the Property, with the matter being referred to Company ABC.

Person C undertook negotiations with Company Y who agreed to reimburse you and Person C the costs for engaging Company ABC in relation to this matter.

Calculations indicating that the sale of the Property would result in an estimated additional amount of income tax and Medicare levy were prepared by Company ABC.

You and Person C commenced negotiations with Company Y to increase the transfer price on the sale of the Property to cover the additional taxes. Additionally, the services of Company ABC were engaged to lodge a private ruling application on your behalf.

After a short period Company Y agreed to increase the transfer price to cover the additional taxes.

During the same month you were requested to provide additional information in relation to the private ruling application. At that point you were unsure of whether or not you would proceed with the sale of the Property.

Person C approached Company Y and suggested that they pay for all of the costs for engaging the services of Company ABC given that any reduction in taxes would benefit them and not you or Person C. Company Y did not respond to Person C's suggestion.

You engaged the services of new legal representatives in relation to this matter who drafted up the relevant documentation in relation to the sale of the Property.

During the following month Company Y withdrew their offer to purchase the Property due to their concerns about the delays in your previous legal representatives drafting of the relevant documentation in relation to the sale of the Property and call option.

A number of days later Company Y's purchasing agent advised that they had entered into call options to purchase two properties close to the Property, being Properties B and C, which provide good access to the development site at Property A.

Person C confirmed with the owners of Property B that they had entered into a call option with Company Y.

Revised offer from Company Y

Shortly after they had withdrawn their offer, Company Y made a revised offer to purchase the Property for a lesser amount which you and Person C accepted.

A Draft Option Agreement (the Agreement) was prepared in relation to the sale of the Property to Company Y which includes the following information:

The relevant documentation was sent to Company Y shortly after the Agreement was prepared.

Person C continues to live at the Property and will continue to live there rent free until settlement on the sale of the Property occurs.

For the purposes of this ruling:

·        You and Person C will enter into the Agreement on the terms and conditions as provided in the Agreement provided with this ruling;

·        Settlement on the sale of the Property will occur during the period covered by this ruling; and

·        The dwelling located on the Property will not be demolished prior to settlement on the disposal of the Property occurring.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 118-195