Private ruling: Capital gains tax
Published: July 2013
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: Q1: 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? | A1: Yes.

Relevant facts and circumstances: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: · the application for private ruling, · the last will and testament of individual A, · the will of individual B, · the contract of sale, · the letters from your solicitors and · the documents provided with the private ruling application. Individual A passed away in the 19XX financial year. Individual A had owned a property that was acquired prior to 20 September 1985. As part of Individual A's will, individual B acquired a life interest in the property. Individuals C, D and E were granted a remainder interest in the property. A title search showed that the transfer creating the life and remainder interests in the property was registered in the 19XX financial year. Individual B lived in the property up until their death in the 200Y financial year. At this point, individual C began living in the property. You instructed your solicitor in relation to the property. Your solicitor carried out a title search on the property and became aware that there was a caveat lodged on the title. Individual C was uncooperative in relation to moving out so the property could be sold. Your solicitors negotiated with individual C and their solicitors in relation to the sale of the property. In the relevant financial year, a Certificate of Title was issued for the property listing individuals C, D and E as tenants in common in equal shares. The property was eventually sold and the contract was executed in the relevant financial year. Settlement occurred in the subsequent financial year.

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

Reasons for decision: Summary: Subsection 118-119(1) of the ITAA 1997 allows you to disregard a capital gain (or loss) made on the disposal of a property acquired from a deceased estate, if certain conditions are satisfied. The conditions relevant to your circumstances are: · the deceased acquired the ownership interest prior to 20 September 1985 and · your ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner. In your case individual A acquired a property prior to 20 September 1985. When individual A passed away in the 19XX financial year, individual B acquired a life interest in the property and individuals C, D and E were granted a remainder interest. The property was sold outside the two year period outlined in subsection 118-195(1) of the ITAA 1997. Therefore, you will only be able to disregard the capital gain from the sale of the property if the Commissioner grants an extension to the 2 year time limit. The Commissioner would be expected to exercise the discretion where the complexity of the deceased estate delays the completion of administration of the estate. 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. | Detailed Reasoning - Application to your circumstances: In your case, individual B lived in the property until they passed away in the 200Y financial year. In the relevant financial year a Certificate of Title was issued for the property listing individuals C, D and E as tenants in common in equal shares. The delay in disposing of the property was caused by the complexity of the deceased's estate which could not be finalised until the expiration of the life interest. This occurred in the 200Y financial year. Additionally, a caveat was lodged on the title. Individual C began living in the property and was uncooperative in relation to moving out so the property could be sold. Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the 2 year time limit.