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

Ruling: Question and answer: | Can you disregard any capital gain or loss made on your share of the sale of the property you inherited? | Yes.

Relevant facts and circumstances: The deceased owned a dwelling that was his main residence and they died a number of years ago. The property was acquired by the deceased prior to 20 September 1985. The property was placed on the market a short time after their death. The property was a residential house on a regular sized residential block which needed work carried out on it. The property was in the hands of agents at all times up until its sale. Initially there was one agent handling the property and after some months it was placed in the hands of multiple agents. Agents advertised the property on the net, in the local newspaper, signs out the front and in their office windows. There was little interest in the property as it was located in a rural area. The asking price of the property was dropped to try and generate interest. A number of people were shown through the property. The property was eventually sold. The property was rented for a period of time to assist with paying expenses associated with the property. You were one of a number of beneficiaries and inherited a sum upon the sale of the deceased's property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20. | Income Tax Assessment Act 1997 Subsection 118-195(1).

Reasons for decision: Summary: A capital gain or 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 199 7)). A dwelling acquired after 19 September 1985 is a CGT asset. The most common CGT event is CGT event A1 which covers the disposal of a CGT asset. Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that if you are an individual and the interest in the ownership of a property passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate, then you are exempt from tax on any capital gain made on the disposal of the property acquired by the deceased before 20 September 1985 if your ownership interest ends within 2 years of the deceased's death. 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. In your case, the property was acquired by the deceased prior to 20 September 1985. The property was placed on the market shortly after the deceased's death and due to the inability to find a buyer the property was not sold within the 2 year time limit. The rural location of the property limited your ability to sell it within the 2 year time period and you were required to drop the sale price considerably to attract interest. The property was used to produce income for a period of time to assist with the expenses associated with the property. The Commissioner considers it appropriate to exercise his discretion to extend the 2 year time limit as you did everything in your power to try and sell the house. You reduced the sale price, had the property in multiple agents' hands and it was advertised in a number of ways. The property was only rented out to assist with the costs associated with the property. Accordingly you can disregard any capital gain or loss made on disposal of your share of the proceeds of the sale of the deceased's property.