Private ruling: Capital gains tax - main residence
Date of advice: 27 August 2020
Published: October 2020
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner allow an extension of time to XX XXXX 20XX for you to dispose of your ownership interest in the property and disregard the capital gain or loss you make on the disposal? | A1: No | Q2: Can you disregard the capital gain that resulted from the sale of the property under another provision of the Income Tax Acts? | A2: No

Relevant facts and circumstances: You purchased a property (the Property) with your own funds but placed the property in the name of your parent in 19XX. Your first child was born in the early 19XX's. Your second child was born in the mid 19XX's. Your parent died in 19XX and left the Property to you and your children in equal shares. The Property was the main residence of the deceased just before they died and was not being used to produce assessable income. The Property was less than X hectares. There was a legal issue as the Property was transferred into the solicitor's name to be held in trust. This was not the wishes of the deceased. The Property was then transferred into the 3 names of you and your two children. The children were X and X years old at the time this occurred. The Property was used by you and your children as your main residence for short periods of time. No other property was your main residence during the time you lived in this property. The family never rented out the property or earned assessable income from it, it was only ever used for family holidays. The Property was unable to be sold until the children both reached the age of 21. This occurred in the 20XX financial year. The property was sold in the 20XX income year. You stated in your application that the property was not sold earlier as the family enjoyed holidaying in it and it was sentimental to the family.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 118-195

Reasons for decision: Summary: You cannot disregard the capital gain from the sale of the property. | Detailed Reasoning - Detailed reasoning: Under section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997), an entity will make a capital gain or a capital loss if a CGT event happens to a CGT asset. CGT event A1 occurs when you dispose of a CGT asset. You are considered to have disposed of a CGT asset if a change of ownership occurs from you to another entity because of some act or event or by operation of law. The capital gain or capital loss is made at the time of the event (section 104-10 of the ITAA 1997). When considering the disposal of a property, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal owner of the property and if that legal owner is also the beneficial owner. You both have legal ownership of the property, with it being transferred to you. When the property is disposed of to another entity, CGT event A1 occurs. There are no provisions besides section 118-195 of the ITAA 1996 that would potentially enable you to disregard the capital gain or loss that results. | Detailed Reasoning - Inheriting from a deceased estate: 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 on XX/month/19XX. The property was not sold within 2 years of the deceased's date of death. The property was not always your main residence from the date of the deceased's death until your ownership interests ends. 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. There has been no challenge to the Will, no serious personal circumstances and settlement of the property was not unexpectedly delayed or fell through. The Will meant that the property couldn't not be sold until you reached 21 years of age. The youngest child reached this age in the middle of 20XX. It then took over a year to sell the property. The complexity of the estate only was present until this child reached the required age. There has been no complexity since that point and there have not been any other reasons given that would allow the Commissioner to extend. Having considered the circumstances and the factors outlined above, the Commissioner will not apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time.