Private ruling: Capital gains tax - deceased estate -Commissioner Discretion
Date of advice: 29 July 2015
Published: July 2015
Ruling period: Income 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? | A1: Yes.

Relevant facts and circumstances: The deceased's spouse acquired the dwelling (the dwelling) before 20 September 1985. The deceased's spouse passed away after 20 September 1985, and their interest in the dwelling passed to the deceased. The dwelling continued to be the deceased's main residence until they passed away a number of years later. The deceased's will named a number of deceased's children as the Trustees of their estate, being Child A, Child B and Child C. Another of the deceased's children, Child D, suffered from a medical condition and had resided in the dwelling with the deceased prior to their passing away. The deceased's will outlined that the dwelling was to be sold as soon as possible following their death and the proceeds were to be divided in accordance with their will. Child D was not listed in the deceased's will as having the right to occupy the dwelling. Child D was unable and unwilling to leave the dwelling after the deceased had passed away to enable the Trustees to administer the estate. During the income year after the deceased passed away, Child D became unwell and was diagnosed with a medical condition. All approaches made to Child D to have them vacate the dwelling were resisted and they became uncooperative. The Trustees of the deceased's estate sought legal advice around 13 months after the deceased had passed away, and formerly requested Child D to vacate the dwelling. The dwelling was sold around 42 months after the deceased had passed away, with settlement occurring around three months later. Child D vacated the dwelling a number of weeks prior to the settlement on the disposal of the dwelling. You submit that the delay in the disposal of the dwelling had not occurred within two years of the deceased passing away had been caused by: • The difficulties the Trustees had experienced in forcing Child D to vacate the dwelling so that it could be disposed of under the terms of the deceased's will • Child D was diagnosed with a medical condition in the year after the deceased passed away which resulted in lengthy hospitalisation. Negotiations with them were suspended during those times • Child B had passed away around 40 months after the deceased had passed away, after battling a medical condition for a number of years • Child C was diagnosed with a medical condition around 36 months after the deceased passed away, and passed away prior to the disposal of the deceased's dwelling • Child A is now the primary carer for Child D • Child A provided assistance to their siblings while they were sick and assisted with their estates after they passed away; and • Child is the sole surviving Trustee of the deceased's estate.

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 unwillingness of one of the beneficiaries to vacate the deceased's dwelling • the illness and passing of a number of Trustees of the deceased's estate • you as the surviving Trustee providing assistance to your sibling's while they were ill and assisting with their estates; and • you assuming the primary carer role for your sibling. 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 personal circumstances 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.