Private ruling: Capital Gain Tax
Published: April 2015
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

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 for the Trustee to dispose of the property? | A1: Yes

Relevant facts and circumstances: The Deceased purchased the property after 1985. The Deceased passed away and the property was main residence at the time of death. It was not being used for income producing purposes. The Deceased's Will, had no surviving persons named as executor or beneficiary of the Deceased's estate. Accordingly Letters of Administration was required to be obtained to administer the Deceased's estate. It was not granted until after 2 years following the date of death. A dispute arose between family members regarding each of their entitlements to the estate assets in addition to who should administer the estate. The family members executed a Deed of Family Arrangement settling the dispute them and appointing sibling A as the sole administrator and Trustee of the estate of the Deceased. The Trustee and sibling A separately paid a certain amount of money to sibling B. Sibling A lodged a transfer with the Lands Titles Office transferring the Deceased's main residence to them.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-195 | Income Tax Assessment Act 1997 Section 128-20

Reasons for decision: Summary: Paragraph 128-20(1) d of the Income Tax Assessment Act 1997 (ITAA 1997) states that a CGT asset passes to a beneficiary in your estate if the beneficiary becomes the owner of the asset under a deed of arrangement if: i. the beneficiary entered into the deed to settle a claim to participate in the distribution of your estate; and ii. any consideration given by the beneficiary for the asset consisted only of the variation or waiver of a claim to one or more other CGT assets that formed part of your estate. In this case, there was not sufficient amount of money in the estate at the time estate proceeding. As a result, paragraph 128-20(1) d of the ITAA 1997 is not satisfied. The property was not passed to sibling A as a beneficiary. However, initially the ownership of the property passed to sibling A as a trustee of the deceased estate. Subsection 118-195(1) of the ITAA 1997 states that if a dwelling passed to you as the trustee of a deceased estate, a capital gain or capital loss you make from a CGT event that happens in relation to a dwelling or your ownership interest in it is disregarded if: • the dwelling was acquired by the deceased before 20 September 1985, or • the dwelling 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. In this case, the Deceased purchased the property after 1985, and the trustee's ownership interest in the property started on the date of death of the Deceased. Moreover, the Trustee transferred the property to beneficiary and the transfer was completed over 2 years after the date of death. Since the disposal of the property was settled more than 2 years after the deceased's death, a full CGT event exemption is available only if the Commissioner applies his discretion and allows a longer period. The Explanatory Memorandum for Tax Laws Amendment (2011 Measures No. 9) Bill 2011 includes the following list of situations in which the Commissioner would be expected to exercise the discretion: • 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 reasons outside the beneficiary or trustee's control. In this case, the Deceased's Will, had no surviving persons named as executor or beneficiary of the Deceased's estate. Accordingly Letters of Administration was required to be obtained to administer the Deceased's estate. It was not granted until after 2 years following the date of death. A dispute arose between family members regarding each of their entitlements to the estate assets in addition to who should administer the estate. A Deed of Family Arrangement was executed to settle the dispute and sibling A was appointed as the sole administrator and Trustee of the estate of the Deceased. Sibling A lodged a transfer with the Lands Titles Office transferring the Deceased's main residence to them. The delay in disposing of the property was caused by the delay in administering the estate, which was caused by the disputes between family members. Moreover, the property has not been used to produce assessable income for any of the period that the Trustee held an ownership interest in the property. Accordingly 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 two year time limit.