Edited version of private advice

Authorisation Number: 1051761005155

Date of advice: 19 October 2020

Ruling

Subject: Capital gains tax

Question

Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and extend the 2 year period?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Your relative passed away.

You inherited a property from your relative.

The property was your relative's main residence.

Your relative appointed the Public Trustee as executor and trustee of their will.

The Public Trustee did not put the property up for sale while the terms of the will were being administered.

You experienced a marriage breakdown.

Your ex-spouse wished to include the property in the asset pool for the divorce proceedings.

You divorce proceedings were finalised.

The sale of the property was finalised.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 118-195(1)

Reasons for Decision

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 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: -

-        the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or

-        an individual who had a right to occupy the dwelling under the deceased's will; or

-        if the CGT event was brought about by the individual to whom the ownership interest passed as a beneficiary - that individual.

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).

In this case, the property was purchased by the deceased after 20 September 1985 and was their main residence until they passed away. The property was not sold within 2 years of the deceased's date of death.

Therefore, you will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the 2 year time period.

The Commissioner can exercise his discretion in situations such as 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

You inherited the property on the after the passing of your relative. The Public Trustee transferred the title of the property to you after a delay in administering the terms of your relatives will.

The Commissioner accepts that this is a circumstance beyond your control due to the complexity of administering the terms of the will and the estate (PCG 2019/5 The Commissioner's discretion to extend the two year period to dispose of dwellings acquired from a deceased estate).

Therefore, you are entitled to an exemption from capital gains tax (CGT) under subsection 118-195(1) of the ITAA 1997 the title of the property was transferred to you by the Public Trustee.

You also experienced a marriage breakdown and begun divorce proceedings with your ex-spouse. The proceedings were lengthy and quite complex. However, the delay in selling the property is not due to circumstances beyond your control as you choose to hold onto the property during the divorce proceedings to have the property disregarded from the asset pool.

Although the marriage breakdown was outside of your control and the property was sold shortly after the divorce proceedings were finalised, the most significant factor in delaying the sale was the decision to disregard the property from the divorce proceedings asset pool. This decision was made based on financial reasons and therefore is not considered an unforeseen or serious personal circumstance.

Having considered the relevant circumstances, the Commissioner will not exercise his discretion and extend the 2 year time limit.