Private ruling: Capital gains tax - deceased estate -Commissioners discretion
Date of advice: 26 August 2015
Published: August 2015
Ruling period: Year ending 30 June 2014.
Date scheme commenced: 1 July 2013.

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 the property before 20 September 1985. The deceased suffered from a medical condition and was admitted into a medical care facility a number of years later. The deceased's spouse continued to reside in the property until they passed away a number of years later. Your sibling moved into the property and resided there for around 11 months. The property was rented out after your sibling had moved out to cover the mortgage costs and to keep it occupied. The deceased passed away a number of years after they had been admitted into the medical care facility. You and your sibling were named as the beneficiaries of the deceased's estate. The Public Trustee was appointed as the Trustees of the deceased's estate. The administration of the deceased's estate was finalised and the Public Trustee transferred the title of the property into your name over two and a half years after the deceased had passed away. You engaged the services of a real estate agent a number of months after the title of the property had been transferred into your name, and they recommended that you wait to list the property until the holiday period had passed. During the following month, you cleaned out the property and made some essential repairs. The property was listed on the market around seven months after the title of the property had been transferred into your name. The property was sold, with settlement occurring around eight months after the titled of the property had been transferred into your name. You submit that the administration of the deceased's estate by the Public Trustee had been delayed for the following reasons: • the Public Trustee case worker in charge of the deceased estate had changed a number of times, and each time the new case officer had to review the case to familiarise themselves with the case prior to contacting you, • your sibling, is a beneficiary of the deceased's estate who in accordance with the deceased's will was entitled to part of the deceased's estate, not including the property. Your sibling has not been in contact with anyone in your family for over a decade and the Public Trustee had to search for them. The Public Trustee failed to find your sibling and their share of the deceased's estate is still being held by them; and • the Public Trustee took over two and a half years to transfer the title of the property into your name. You have provided copies of a number of documents, which should be read in conjunction with, and forms part of this private ruling.

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 the extensive period the Public Trustee took when finalising the deceased's estate and subsequently transferring the property into your name. Also the complexity of the deceased's estate contributed to the delay given that the Public Trustee had to conduct a search to find your sibling, one of the beneficiaries, which had taken considerable time. 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 and due to circumstances outside of your control. After considering the facts of your situation, the Commissioner will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year period until settlement on the disposal of the property occurred.