Private ruling: CGT 2 year extension of time
Date of advice: 28 February 2019
Published: May 2019
Ruling period: Year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Will the Commissioner exercise his discretion to extend the 2 year period under section 118-195 of the Income Tax Assessment Act 1997 for a property until the settlement date in the 2018 income year? | A1: No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The deceased died in the 20XX income year. The property was purchased by the deceased and their spouse pre-capital gains tax. The property was the deceased’s main residence for the whole of their ownership period. The property was more than 2 hectares and consisted of two dwellings. Probate was granted in the 20XX income year. The deceased’s two children were appointed as executors as per the will. The two children along with two grandchildren were beneficiaries as per the will. The main residence was not rented out prior to their death or after their death. The property was left to the two children under the will. Child 1 moved into the property in XXX 20XX after the deceased passed and lived there rent free until it was sold in the 2018 income year at which point they commenced renting the property from the new owner until moving out in a number of months later. The delay in selling the main residence was due to a number of things: ● Child 1 wanted to purchase Child 2’s share of the property and obtained advice in relation to the purchase which took from XXX 20XX to XXX 20YY to get the advice. ● After the advice was obtained the offer to purchase the property was withdrawn by Child 1. ● Child 1 and Child 2 then decided to place the property on the market. ● The guardian of the two grandchildren challenged the will and this took several months to resolve after probate was granted. ● The smaller dwelling on the property needed to be cleaned and repairs carried out, this took several weeks. Between XXX 20YY and when the property was first placed on the market on X XXX 20ZZ Child 1 and 2 had X estate agents look at the property and provide an appraisal. Child 1 and 2 decided on the agent who could provide the best outcome in terms of price for the property and it went to auction on XX XXX 2017 and was passed in with no bids received. Child 1 and 2 then commenced proceedings to have the property sold through private treaty and in 1 month negotiations commenced to sell the property. It was sold shortly after and settlement was on XX XXXX 20ZZ.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 118-195(1).

Reasons for decision: Summary: A capital gain or capital loss is made as a result of a capital gains tax (CGT) event happening to a CGT asset (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)). The most common CGT event is CGT event A1 the disposal of a CGT asset. Subsection 118-195(1) of the ITAA 1997 provides that a trustee of a deceased estate disregards a capital gain or loss from a dwelling that a deceased person acquired before 20 September 1985 if: (1) the trustee’s ownership interest ends within 2 years of the deceased’s death, or (2) from the deceased’s death until the trustee’s ownership interest ends, the dwelling was the main residence of one or more of the following persons: (a) the spouse of the deceased immediately before death; or (b) an individual who had the right to occupy the dwelling under the deceased’s will; or (c) an individual who brought about a CGT event where the ownership interest in the dwelling passed to the same individual as a beneficiary. 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 following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion to extend the time period in which you can dispose of the property: ● 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 In determining whether or not to grant an extension the Commissioner is expected to consider whether, and to what extent, the dwelling is used to produce assessable income and how long the trustee or beneficiary held it. The delays that occurred in relation to the sale of the property were not out of the control of the executors. The advice that was obtained in relation to Child 1 purchasing Child 2’s share of the property took 12 months at which point child 1 decided not to proceed with the purchase. During this same period a challenge to the will was made by the guardian of the two grandchildren which took several months to resolve. From XXX 20YY to XXX 20ZZ X real estate agents gave the executors written appraisals on the property and one was finally decided upon. It is the Commissioner’s opinion that an unreasonable amount of time was taken to obtain advice in relation to Child 1 purchasing Child 2 share of the property and that another 12 months was taken to decide on a real estate agent and put the property on the market. The Commissioner does not consider that the difficulties in relation to the administration of the estate were outside of the control of the executors. The Commissioner will not exercise his discretion to extend the 2 year time limit to the settlement date as the circumstances relating to the delay in the sale of the property was not beyond the estates control.