Private ruling: Capital gains tax - deceased estate - Commissioner's discretion to extend the two year period - main residence exemption
Date of advice: 13 January 2017
Published: June 2017
Ruling period: Year ended 30 June 20ZZ.
Date scheme commenced: 1 July 20YY.

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 until a specific date? | A1: Yes.

Relevant facts and circumstances: The deceased passed away in 20XX. The deceased owned a property which was their main residence (the property). The property was originally purchased after 20 September 1985. Following the deceased's death, the property was rented out. By way of the tenant agreed to purchase the property for with settlement to occur within 2 years of the deceased's death. Before the sale took place, termites were found in the property and the sale did not go ahead. It took a few months to fix the termite damage and the property was then listed on the market. The property was sold with settlement occurring in late 20YY.

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 until a specific date. | 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. In your case, the delay was caused as a result of the discovery of termites in the property which caused a tenant who had verbally agreed to purchase the property, to walk away from the sale. The Commissioner accepts that it is appropriate to grant the short extension that you have requested.