Private ruling: Capital gains tax - deceased estate - two year discretion
Date of advice: 15 June 2019
Published: August 2019
Ruling period: Year ended 30 June 2020 | 1 July 2019 | The deceased acquired a dwelling (the dwelling). | The deceased passed away in 20xx. | The dwelling was the deceased's main residence. | The deceased was survived by a number of children ('A') who is the executor and ('B') | Probate was granted in 20xx. | Title to the dwelling was transferred to the executor in 20xx. | The dwelling has been occupied by 'B' for their entire life. 'B' provided care for the deceased during their lifetime. | 'B' had not been employed in a permanent capacity for a number of years. | 'B' obtained employment on a casual basis. | The financial position of 'B' meant that it was difficult to obtain finance to acquire another dwelling. The option of entering into a lease was also difficult as 'B' had no rental history. | 'B' has been treated for a medical condition for many years and the executor decided to allow 'B' to remain residing in the dwelling until such time as 'B' was ready to move. | 'B' has been living in the dwelling rent free. | The will of the deceased did not provide 'B' a life interest or a right to reside in the dwelling. | 'B' financial position and mental state has now stabilised and they have now decided to move out of the dwelling. | The dwelling was recently sold and settlement will take place on 20xx. | 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 | Summary | The Commissioner will not 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 | 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. | Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example: | · the ownership of a property or a will is challenged | · the complexity of a deceased estate delays the completion of administration of the estate | · 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 | · the settlement of a contract of sale over the property is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control. | These examples are not exhaustive, but provide guidance on what factors the Commissioner would consider reasonable to exercise his discretion to extend the two year period to dispose of an inherited property. | In exercising the discretion the Commissioner will also take into account whether and to what extent the property is used to produce assessable income and for how long the trustee or beneficiary held the ownership interest in the property. | Whether the Commissioner will exercise his discretion under subsection 118-195(1) of the ITAA 1997 will depend on the facts of each case. | Application to your situation | The Commissioner expects an executor of a deceased estate to make reasonable enquiries about matters that affect the administration of the estate. | You should have been aware that there were conditions that had to be met if the sale of the property was to be exempt from the capital gains provisions. | We would have expected that at the time the choice not to sell the property within the two year period had been made, that you would have realised that that choice would potentially render the exemption unavailable to you, and the consequences of that choice. | You should have been aware that the CGT provisions might apply if the sale of the property was delayed beyond two years from the date the deceased passed away. | The personal circumstances of 'B' have not prevented you from selling the property. It was a choice to allow 'B' to reside in the dwelling that has prevented you from selling the property as this was a family arrangement. | The deceased's estate was not of a complex nature. Therefore, this is not a factor that the Commissioner would take into consideration when making the decision on whether or not to exercise his discretion to extend the two year period to dispose of the property; and Settlement on the disposal of the property did not occur until almost X years after the deceased passed away. | Having considered the relevant facts, the Commissioner will not apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit. | The normal capital gains tax (CGT) rules will apply to the disposal of the property. | Having considered the relevant facts, the Commissioner will not apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.

Ruling: 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? | No