Edited version of private advice

Authorisation Number: 1051633587039

Date of advice: 27 February 2020

Ruling

Subject: Commissioners discretion - extension of time

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 on the sale Unit 1?

Answer

Yes. Having considered your circumstances and the relevant factors, the Commissioner will allow an extension of time. Therefore, you do not need to declare any capital gain that you may have as a result of the sale of Unit 1. Further information about this discretion can be found by searching 'QC 52250' on ato.gov.au

Question 2

Will the Commissioner accept that, for the purposes of the partial exemption from capital gains tax (CGT) under section 118-200 of the ITAA 1997, Unit 1 was not used for the purpose of producing assessable income?

Answer

Not applicable

Question 3

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 on the sale of Unit 2?

Answer

No

Refer to reasons for decision

This ruling applies for the following period

Year ended 30 June 20XX.

The scheme commences on

1 July 20XX.

Relevant facts and circumstances

The Deceased purchased the property prior to 20 September 1985 (the Dwelling).

The property consisted of 2 residential dwellings being dwelling 1 and dwelling 2 under the one title.

The dwellings are connected by a common wall.

The Deceased resided in Unit 2.

Many years before the Deceased's death Unit 1 was rented to the Life Tenant, the Life Tenant was not a relative (but believed to be a close friend), for an unknown amount.

Many years later the Deceased passed away.

Unit 2 has been rented for commercial terms since the death of the Deceased.

Under the terms of the Last Will and Testament of the Deceased:

·         The Life Tenant had a right to occupy Unit 1 for a nominal amount until they no longer used it as their main residence or until their death; and

·         An amount was set aside for the maintenance and expenses of both Unit 1 and Unit 2.

·         Sometime after the death of the Deceased the Life Tenant began paying more rent per week than stated in the Will on her own accord until her death.

Many years later the Life Tenant passed away.

After the Life Tenant's death the Dwelling was placed on the market.

A few months after the Dwelling was placed on the market the Dwelling was sold.

A short time later settlement occurred on the Dwelling.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 subsection 118-130(3)

Income Tax Assessment Act 1997 subsection 118-190

Income Tax Assessment Act 1997 subsection 118-195

Income Tax Assessment Act 1997 subsection 118-200

Reasons for decision

Question 3

Subsection 118-195(1) of the ITAA 1997 states that if you owned a dwelling in your capacity as trustee of a deceased estate (or if it passed to you as a beneficiary of an estate), then you are exempt from tax on any capital gain made on the disposal of the property if:

·         the property was acquired by the deceased before 20 September 1985; or

·         the property was acquired by the deceased 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

and one of:

·         your ownership interest ends within 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances); or

·         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; 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.

To be CGT exempt, you can sell the dwelling up to two years after the deceased's death, or longer, if the Commissioner allows, or you can sell the dwelling after someone's life interest ends if it were their main residence from the deceased's date of death.

In your case the property located at Unit 2 (the property) will be treated as a completely separate and distinct property from that located at Unit 1.

The property was the Deceased's main residence prior to their death, and at that time, was not being used to produce assessable income.

The property was purchased by the Deceased prior to the introduction of the capital gains tax provisions in September 1985.

As the property was purchased pre CGT the property will remain CGT free up until the date the deceased passed away.

After the Deceased passed away the property was transferred to the Deceased's estate where it was decided the property would be rented out.

The property was rented out from the Deceased's date of death until the property was sold.

The property settled more than two years after the Deceased's death.

In determining whether or not to grant an extension the Commissioner is expected to consider whether and to what extent the property was used to produce assessable income and how long the trustee or beneficiary held the property before it was sold.

As the property was used to produce assessable income and the property was held for well outside the two year period to dispose of an inherited dwelling, CGT will apply to the sale of the property from the time the Deceased passed away until the property was sold.

Having considered the relevant facts, the Commissioner is not able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit for Unit 2.