Private ruling: Capital gains tax - deceased estate -Commissioners discretion
Date of advice: 29 July 2015
Published: July 2015
Ruling period: Income year ending 30 June 2016.
Date scheme commenced: 1 July 2015.

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 deceased purchased a property (the dwelling) after 20 September 1985, which was their principal place of residence. The deceased passed away a number of years later. You are the Trustee of the deceased's estate, and you and your sibling are the beneficiaries of the deceased's estate. You as the Trustee of the deceased's estate are selling the deceased's dwelling and the dwelling was put on the market around four months after the deceased passed away. The dwelling has remained vacant since the deceased passed away. In the year after the deceased passed away, your parent became unwell and you looked after them until they passed away during the following year. The dwelling has remained on the market since it was put on the market until the present date. The original real estate retired and you have changed the real estate agent, and at their suggestion have reduced the asking price and refreshed the interiors of the dwelling.

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: Detailed Reasoning - Commissioner's discretion under Section 118-195 of the ITAA 1997: Subsection 118-195(1) of the ITAA 1997 provides a capital gains tax (CGT) exemption to a beneficiary or trustee of a deceased estate where a CGT event happens to a dwelling (or an ownership interest in a dwelling) acquired from a deceased estate. An exemption is provided where the beneficiary or trustee's ownership interest in the dwelling ends within two years of the deceased's death and just before the deceased's death (for pre-CGT dwellings) the dwelling was their main residence. The Commissioner has discretion to extend the two year time period in subsection 118-195(1) of the ITAA 1997 where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death. This discretion may be exercised in situations such as where: 1. the ownership of a dwelling or a will is challenged; 2. the complexity of a deceased estate delays the completion of administration of the estate; 3. 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 4. 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 your submission, you state that the delay in disposing of the dwelling was due to your personal circumstances arising in relation to your parent's medical condition and their passing away, and that while the dwelling has been on the market for sale, and efforts have been made to sell the dwelling, the dwelling has not been disposed of at this point. We have taken the facts of your situation into consideration when determining whether the Commissioner's discretion would be exercised extend the two year period and allow you to disregard any capital gain or capital loss made on the disposal of the dwelling under subsection 118-195(1) of the ITAA 1997. We accept that the reason for the delay in the disposal of the deceased's dwelling was due above mentioned issues arising during the two year period after the deceased had passed away. 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 to dispose of the deceased's dwelling.