Private ruling: Capital gains tax - deceased estate -extension of the two year period
Date of advice: 14 July 2015
Published: July 2015
Ruling period: Year ending 30 June 2015.
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 and their spouse acquired the property before 20 September 1985. The property has a land area of more than two hectares. The deceased's spouse passed away a number of years later with the deceased passing away about 12 months later. The deceased's will named a number of their children as the trustees of their estate. The X Government had developed a strategy which was endorsed before the deceased had passed away. As part of this strategy, draft conservation strategies had been released for public consultation for a number of months around the time the deceased had passed away. The property was put on the market about two months after the deceased had passed away. The real estate agent engaged to sell the property had advised that they were receiving negative feedback from prospective buyers as to the uncertainty of the land use due to the proposed overlays and its future zonings, which had adversely affected the disposal of the property. The X Government strategy was approved a number of years after the deceased had passed away and as a result restrictions were imposed on what the landholder of the property could do in relation to the property. A contract of sale was entered into about three years after the deceased had passed away, with settlement occurring a number of months later. Copies of documentation have been provided with this private ruling, which should be read in conjunction with, and form part of the scheme 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: 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 rezoning of the land which had deterred potential buyers from purchasing the property. The property had been put on the market shortly after the deceased had passed away, but settlement on the disposal of the property had not occurred until after the two year period had passed. 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 to the 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. Note: The Commissioner's discretion only applies to a maximum of two hectares of the property. Therefore, any land that exceeds two hectares will be subject to the capital gains tax provisions. A taxpayer is able to choose which 2 hectares is exempt. To assist you with your understanding of how to determine which two hectares of the property the exemption should apply to, we have enclosed a copy of Taxation Determination TD 1999/67 which outlines how to calculate any capital gain or capital loss made on the land in excess of the two hectares.