Private ruling: Capital gains tax - deceased estate - request discretion to extend the two year period
Date of advice: 3 November 2016
Published: February 2017
Ruling period: Income year ending 30 June 20XX; and | Income year ending 30 June 20YY.
Date scheme commenced: June 20XX

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 Person A solely purchased a property (the Property) after 20 September 1985. Person A and their spouse (Person B) resided at the Property from the time it was purchased until Person A (the deceased) passed away many years after the Property had been purchased. The deceased's will appointed two persons as the executors of their will and the trustees of the deceased's estate. The deceased's will provided that the executors would hold the Property on trust for Person B for the period of Person B's life. The first codicil of the deceased's will appointed an additional executor of the deceased's estate. Probate on the deceased's estate was granted a number of months after the deceased had passes away. Person B continued to reside at the Property until they passed away a number of years after the deceased had passed away. After Person B passed away, you, as the trustees of the deceased's estate cleaned out the Property and prepared it for sale. You engaged the services of a real estate agent and who auctioned the Property with the contract of sale being entered into a number of months after Person B had passed away. Settlement on the sale of the Property is expected to occur a number of months after the contract of sale was entered into.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 subsection 118-130(3) | Income Tax Assessment Act 1997 section 118-195

Reasons for decision: Summary: The Commissioner will exercise his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time. | 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, such as if the settlement of a contract of sale over the inherited property falls through for reasons outside of the trustee's control, or if the will is challenged. There must not be any other factors mitigating against exercising it. In this case, the Property had been the deceased's main residence at the time they passed away. The deceased's will instructed you to hold the Property on trust for Person B for the period of their life. Person B passed away a number of years after the deceased had passed away. As a result of the delay caused by the terms of the deceased's will, the sale of the Property could not be completed within the two year period after the deceased had passed away. Once Person B had passed away, you had undertaken the necessary activities to prepare the Property for sale. The Property was auctioned a number of months after Person B had passed away with settlement to occur a number of months after the contract of sale had been entered into. Based on the information and documentation we accept that the Property could not be sold due to terms outlined in the deceased's will, that you had undertaken the activities to be able to sell the Property shortly after Person B had passed away and the Property was sold only a few months after Person B had passed away. After reviewing the facts of this situation, the Commissioner accepts that it is appropriate to grant the extension that you have requested.