Private ruling: Commissioner’s discretion to extend the two year time limit to dispose of a dwelling
Date of advice: 14 May 2018
Published: August 2018
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 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: R acquired a dwelling before 20 September 1985 (the dwelling). The dwelling was R’s main residence. The dwelling was jointly occupied by S, defacto spouse of R. S occupied the dwelling for many years until S moved into a nursing home. S appointed T, enduring power of attorney. R passed away in 20XX (the deceased). T was appointed executor of R’s estate. The deceased’s will provided S with a right to occupy the dwelling during S’s life. Probate of the will was granted to the executor T. T as executor of the deceased’s estate sought legal advice from solicitors as to S’s entitlement to inherit the dwelling or a life interest in its ownership. As a result of the above legal advice, the executor and beneficiaries of the deceased’s estate entered into a Deed of Family Arrangement (deed) with S’s enduring power of Attorney in 20XX. The deed provided for the dwelling to be rented out and for S to obtain a life interest in the net proceeds of either the rental income or the sale of the dwelling. From the date that the deed was entered into, the dwelling was rented. Net income from the dwelling was provided to S to meet the expenses he incurred in residing in the nursing home. S passed away in 20XX. The executor of the dwelling attempted to negotiate with the other beneficiaries to purchase the dwelling jointly, with the executor’s children purchasing an interest in the dwelling. The executor’s solicitors were approached within a short period following S’s passing to assist the beneficiaries negotiate a sale price for the dwelling. An accountant was engaged in late 20XX to provide advice on the CGT implications of selling the dwelling, but was unable to provide this advice. This resulted in another accountant being engaged, who suggested that a private ruling be obtained to clarify the CGT implications. A final negotiated price and the details of the sale were approved by all the beneficiaries in early 201X and sale of the dwelling has been pending the outcome of the private ruling. It is expected that ownership of the dwelling will pass to the two children of the executor and the executor will retain an interest in the dwelling before X 201X.

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 | Income Tax Assessment Act 1997 subsection 118-195(1)

Reasons for decision: Summary: 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. | 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. ● The dwelling was the main residence of the deceased from the time of acquisition until the deceased passed away. The dwelling was occupied by S until S moved into a nursing home. The will of the deceased provided S with a right to occupy the dwelling following the deceased’s passing, but S was unable to access that right as S was receiving full time care in a nursing home. ● To preserve S’s right to occupy interest under the deceased’s will and any claims S or S’s estate may have against the deceased’s estate under the Family Provisions legislation, the beneficiaries and executor of the deceased’s estate and S’s Power of Attorney entered into a Deed of Family Arrangement. This Deed of Family Arrangement recognised the continuation of S’s right to occupy by allowing the rental income from the deceased’s dwelling to be applied for the benefit of S’s living expenses. ● The existence of the right to occupy that S held in the deceased’s estate which commenced from the date of the deceased’s passing until S passed away in 20XX, prohibited the dwelling from being sold by the executor during S’s lifetime. ● Following S’s passing and the termination of the right to occupy interest S held, the dwelling will be sold to family members. This will occur within 19 months of S’s passing. The Commissioner accepts that it is appropriate to grant the short extension that you have requested.