Private ruling: Capital gains tax- Commissioners discretion
Date of advice: 16 September 2016
Published: November 2016
Ruling period: Year ending 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner, exercise discretion under section 118-195 of the Income Tax Assessment Act 1997 and extend the two year time period? | A1: No.

Relevant facts and circumstances: The deceased died 20XX. The deceased purchased a property pre-CGT. The property was the deceased's main residence from the date of acquisition until date of death. The property land size is over 2 hectares. The deceased's child (the executor) was appointed executor. Probate was granted 20XX. The property was valued around the date of death. The property was first listed for sale 20XX for significantly higher than the valuation price. The delay was due to time required to ready the house and land to be sold. The reason for the difference in the first listing price and the valuation was due to a mutual decision made by the beneficiaries. The price of the property was reduced throughout its listing over several years. The property was rented from 20XX until the property was sold. The property was sold and settled 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Subsection 118-195(1)

Reasons for decision: Summary: Under section 120-20 of the Income Tax Assessment Act 1997 (ITAA 1997), an entity will make a capital gain or a capital loss if a capital gains tax (CGT) event happens to a CGT asset. The most common CGT event happens when you dispose of an asset to someone else, for example, if you sell or give away an asset. Disposal is considered to occur if a change of ownership occurs. This is a CGT event A1 under section 104-10 of the ITAA 1997. 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). 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). 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 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 In exercising the discretion the Commissioner will also take into account whether and to what extent the dwelling is used to produce assessable income and for how long the trustee or beneficiary held the ownership interest in the dwelling Application to your circumstances The Commissioner's discretion is limited to situations where the owner is effectively prevented from selling the dwelling due to circumstances beyond their control. In this case the deceased passed away in 20XX but the property was not placed on the market until 20XX. Further, the beneficiaries made a mutual decision to list the property for sale at a price significantly higher than the valuation obtained at the date of death. After multiple price reductions the eventual sale of the property took place more than X years after the deceased passed away. The reason for the delay in this case is of a different nature to the situations in which the Commissioner can exercise the discretion. As such the Commissioner is unable to apply his discretion under subsection 118-195(1) of the ITAA 1997 to allow an extension to the two year time limit. Therefore the capital gain made on the disposal of the property cannot be disregarded.