Edited version of private advice

Authorisation Number: 1051685365536

Date of advice: 01 July 2020

Ruling

Subject: CGT - deceased estate - two year period - extension of time

Question

Will the Commissioner allow an extension of time under section 118-195 of the Income Tax Assessment Act 1997 for you to dispose of your ownership interest in the dwelling located at X and disregard the capital gain you make on the disposal?

Answer

No

This ruling applies for the following period

Year ending 30 June 2020

The scheme commenced on

01 July 2019

Relevant facts and circumstances

You are the Trustee for the deceased estate and are also a beneficiary of the estate.

The deceased acquired the property in 19xx.

The property was the deceased's only main residence from when it was acquired until their death and was not used to produce assessable income.

The residence was located on less than two hectares of land.

Probate of the estate was granted on to you as executor of the Estate.

Prior to passing the deceased was in residence in Hospital. Under the absence rule the deceased still considered the property located at as their main residence.

Following the death another person who is also a beneficiary of the estate lived in the property until the property was destroyed by fire.

The beneficiary had the right to occupy the property under the will.

There was no challenge to the will.

You state the reason for the delay in disposing of the property was its dilapidated condition and that maintenance works were undertaken over an extended period to place the property on the market.

The fire occurred prior to the property being ready to be placed on the market for sale.

A further delay occurred whilst you were negotiating with the insurance company regarding settlement of the claim.

The Estate received a cash payment from the insurance company in relation to the residence that was burnt to the ground.

The Trustee of the Estate chose not to build another property on the vacant land where the main residence was located and did not list the vacant land for sale until the adjoining property was listed for sale.

There was an adjacent residence on the property, which was also damaged in the fire and required further repairs to be undertaken prior to listing for sale.

Both properties in the estate were eventually listed for sale with a contract signed more than six years after the deceased death with settlement occurring a month later.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-195

Income Tax Assessment Act 1997 Section 118-160

Reasons for decision

Reasons for Decision

Detailed reasoning

Subsection 118-195(1) of the ITAA 1997 states that if you own a dwelling in your capacity as trustee of a deceased estate (or 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

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

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 deceased acquired the property in 19xx and she was the sole proprietor of this property until they died.

The property was the main residence of the deceased until they passed away.

The Commissioner can exercise his discretion in situations where:

·   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

Application to your circumstances

In this case, there has been no challenge to the will, the estate was not complex, there were no unforeseen or serious personal circumstances that prevented the sale, and the delay in selling the property is not due to circumstances beyond the beneficiary or trustee's control.

We acknowledge your circumstances regarding the complication of the delay in selling the property whilst a beneficiary under the will was residing in the property and whilst living in the house it burnt to the ground.

CGT event C1 happens if a CGT asset you own is lost or destroyed. In your situation the deceased's main residence was destroyed by fire.

You make a capital gain from CGT event C1 happening if the capital proceeds from the loss or destruction are more than the assets cost base. You make a capital loss if those capital proceeds are less than the assets reduced cost base.

As a result of the dwelling being burnt to the ground the resulting asset is vacant land.

CGT event A1 happened when you as trustee for the estate disposed of the property. (which was at that time vacant land).

You advised that the Estate received a cash payment from the insurance company regarding the settlement of the claim and as the Trustee of the estate chose not to build another property on the vacant land where the main residence was located and did not list the vacant land for sale until the adjoining property was listed for sale.

The circumstances are of a different nature to the situations in which the Commissioner can exercise his discretion. Having considered the relevant circumstances, the Commissioner will not exercise his discretion and extend the two year time limit.