Private ruling: Deceased estate
Published: May 2015
Ruling period: Year ended 30 June 2015; and | Year ended 30 June 2016.
Date scheme commenced: 1 July 2014.

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 acquired the dwelling before 20 September 1985 and it had been the deceased's residence until they passed away a number of years later. Repairs on the dwelling were undertaken after the deceased passed away, but unforeseen events delayed the disposal of the dwelling within the two year period. A delay in the administration of the deceased's estate had occurred due to the requirement for official translations having to be obtained in relation to the deceased's will, and the will of the deceased's spouse. As a result, the estate was not finalised until over 12 months from the date of the deceased's death had passed. A relative of the trustee had experienced health issues on a number of occasions during the two year period after the deceased had passed away, and had required hospitalisation and post hospital care from the trustee's family. The dwelling had been put on the market, and a contract of sale was entered into within the two year period. However, the contract of sale was cancelled by the purchaser/s due to extensive termite damage and the lack of termite barriers. Work has been undertaken to replace the termite damaged areas of the dwelling. The dwelling is currently under contract. Documentation and copies of telephone Short Message Service (SMS) text messages have been provided with the request, and should be read in conjunction with, and form part of the description of the scheme for the purpose 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: Summary: 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 issues arising in relation to the finalising of the deceased's estate, the health issues experienced by a relative of the trustee during the two year period after the deceased passed away, and the cancellation of a contract of sale of the dwelling due to termite damage in the dwelling. 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 relevant property.