Private ruling: Assessable income and deceased estates
Date of advice: 14 December 2016
Published: May 2017
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017
Date scheme commenced: 16 April 2013

Ruling: Questions and answers: | 1. Are the salaries and wages that you derive from your employment that were directly used to offset your spouse's debt assessable in Australia? | Yes. | 2. 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 to dispose of your late parent's property? | Yes.

Relevant facts and circumstances: You were born in Country Y and are a citizen of Country Y. Your spouse moved to Australia and acquired a Medicare card. Your spouse has been lodging income tax returns for a number of years. On several occasions you travelled to Australia to visit your spouse. A number of years later you came to Australia to live permanently. After being in Australia for a short period, you returned to Country Y to celebrate your parent's birthday. While you were in Country Y your parent passed away. You were the executor of your parent's will and as such remained in Country Y to organise the disposal of your late parent's home. Your parent purchased the home pre - 20 September 1985 and occupied the home as their main residence up until their passing. Prior to your parent's passing your sibling was living with your parent and taking care of their needs. Your parent had accumulated a considerable amount of possessions and the home required maintenance. This meant that there was a delay in its ultimate disposal. The home was eventually disposed. This was 2 years and 3 months after your parent's passing. You returned to Australia shortly after and once again worked in Australia for no remuneration. After a period, you returned to Country Y to do charity work before returning to Australia and shortly after you acquired a Medicare card. While in Australia you worked for 2 short periods. You did not receive any remuneration; however your employment was used to help your spouse offset a debt.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 118-195

Reasons for decision: Detailed Reasoning - Ordinary Income: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Salaries and wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. In your case, you were employed in Australia for 2 short periods. Although you did not physically receive the income, you still are considered to have derived income from the service that you provided. Further you are deemed to have received the income and applied it to a debt that was owed by your spouse. Therefore, this income is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997, and you are required to declare this income when lodging an Australian income tax return. | Detailed Reasoning - Deceased estates - capital gains tax: Where you inherit the dwelling of a deceased person you may be exempt from any capital gain you make when you sell the property. Section 118-195 of the Income Tax Assessment Act 1997 provides that where the dwelling was acquired by the deceased prior to 20 September 1985 and is sold within two years of the deceased's death, the trustee or beneficiary can disregard the capital gain or capital loss resulting from the sale. This is so even if the dwelling was used for income producing purposes. Where the sale of the property is delayed, the trustee or beneficiary of the deceased estate may apply to the Commissioner to grant an extension of the two year time period under the Act. Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the trustee or beneficiary, for example: ● 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 unforseen 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 or a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control. In your situation, there was a delay in the disposal of your late parent's property that meant that you have exceeded the 2 year disposal period by 3 months. The delay was caused by a number of circumstances including the need to travel back and forth from Country Y. These events were outside your control. Therefore, the Commissioner will exercise his discretion to extend the two year period in which the deceased's main residence was disposed of. Accordingly, you are entitled to disregard any capital gain that resulted from the disposal of the Country Y property.