Private ruling: Capital gains tax - Deceased estate - Two year extension discretion
Date of advice: 21 September 2015
Published: September 2015
Ruling period: 2014-15 income year
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) in relation to the dwelling on the property and allow an extension of time until settlement of the sale of the property? | A1: Yes.

Relevant facts and circumstances: The deceased acquired the residential property some forty years ago. The deceased passed away about three years ago. The property was held by you as Trustees of the Estate from the date of death until its eventual sale with settlement less than two and a half years after the deceased passed away. The Trustees consisted of the deceased's adult children. The Trustees made a capital gain on the sale of the property. The dwelling on the property was the principal place of residence of the deceased and spouse for all of the ownership period except for a short period prior to the deceased's death. During this time, the deceased was a resident of a nursing home. From the date when the deceased began living in the nursing home until the date the property was sold, the property was occupied by the deceased's relative. The relative looked after the property in a caretaker capacity. The relative paid a nominal rental contribution which covered ongoing costs. There was no profit intent in respect to the rental arrangement. The Trustees were aware of the two year rule contained in section 118-195 of the ITAA 1997 and had every intention to sell the property within the appropriate time, however, they wanted to ensure the best commercial price was obtained. The delay in selling the property was due to the following reasons: • The deceased was an extremely accomplished specialist in particular fields who maintained a well-equipped workspace within the house. Until the death, the Trustees were not at liberty to commence the task of sorting, cataloguing and rectifying the vast contents of the workspace. • One of the Trustees had extensive surgery with continued complications and was not able to lift or carry heavy loads for long, let alone sorting the workspace contents. This combined with certain aspects of the property made clearing the contents a more difficult and time consuming task. • One of the Trustees was required to be away for some two months during the second year after the deceased passed away. This Trustee was also required to travel due to other work commitments during the two years after the deceased's death. • The remaining Trustees were also overseas during part of the initial two year period due to family commitments. • The combined absence of the Trustees made the task of clearing the workspace and preparing the house for sale difficult and prolonged. • The delay in clearing the property combined with their collective absences meant that they were not able to present the house and conclude a sale within the two year timeframe, as was their previous intention. • The property market was sluggish during the period after the deceased's death. Realising the proper value for the property required a longer period of time. Certain documents were provided to support these statements. They are to be read with and form part of the description of the scheme for the purpose of this ruling

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10, | Income Tax Assessment Act 1997 Subsection 118-130(3) and | Income Tax Assessment Act 1997 Section 118-195.

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. The Commissioner will exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time until settlement of the sale of the property. | Detailed Reasoning - Detailed reasoning: The capital gains provisions allow for concessional treatment to be given to a dwelling that was owned by a deceased person if the executors of the deceased person's estate sell that dwelling within two years of the date of death. Any capital gain or capital loss made on the sale of such a dwelling is disregarded if the dwelling was: • Acquired by the deceased before 20 September 1985, or • The deceased's main residence when they died The Commissioner has the discretion to extend the two year period. This extension is generally only granted where the executors are merely arranging the ordinary sale of the dwelling and the cause of the delay is beyond their control (for example, if the will is challenged). There must not be any other factors mitigating against exercising it. In this case, the Trustees were progressing toward completing the sale of the property well within the two year deadline while showing appropriate respect to the deceased's life work and legacy. Some of the steps the Trustees needed to complete prior to the sale were delayed due to the unavoidable events disclosed in your private ruling request. As a result of these delays, the sale of the property could not be completed until just after the two year deadline expired. It would not have been appropriate to engage other parties to perform the steps mentioned above due to the nature and volume of the items in the house and workshop. Likewise, it would have been difficult to move all these items into temporary storage to allow an earlier sale. The Commissioner accepts that it is appropriate to grant the short extension that you have requested.