Private ruling: CGT – deceased estate – Commissioner’s discretion to extend the two year period
Date of advice: 5 February 2018
Published: April 2018
Ruling period: Year ended 30 June 2017.
Date scheme commenced: 1 July 2016.

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 DDMMYY? | A1: No.

Relevant facts and circumstances: The deceased purchased the dwelling prior to 20 September 1985 (the Dwelling). The deceased passed away a number of years ago (the Deceased). The Deceased was living in an Aged Care Facility, but the Dwelling was left vacant, and was available for them to return at any time they wished. The Dwelling was not used for income producing activities and no income has been received from the Dwelling after the passing of the Deceased. The Deceased’s Will named the following as executors (the Executors): ● Person A, child of the Deceased; and ● Person B, child of the Deceased. Approximately 12 months after the Deceased passed away the Executors attended a meeting with real estate agent 1 regarding placing the dwelling on the market. Approximately 12 months after the Deceased passed away Person B’s child was involved in a breakdown of their marriage. Approximately 12 months after the Deceased passed away, after prolonged court proceedings which commenced prior to the Deceased passing away, Person A’s child was imprisoned. Approximately two years after the Deceased passed away the Deceased’s estates solicitors advised the Executors of their intention to obtain a Grant of Probate and the Application for the Grant of Probate was lodged. Approximately two years after the Deceased passed away Probate was granted. Approximately one month after Probate was granted a dislodged roof tile enabled a number of possums to enter the Dwelling causing significant damage to the interior. Due to health and safety issues the Executors treated the interior of the Dwelling so as to not cause harm to anyone entering the Dwelling. Approximately two months after Probate was granted, after visiting the Dwelling, Person B suffered a severe allergic reaction. Person B saw a doctor and received Anti-Allergy medication. Approximately three months after Probate was granted the Executors consulted real estate agent 2 regarding the damage to the Dwelling and followed their recommendations to methodically sort through various items and documents. Approximately six months after Probate was granted and having recovered from their allergic reaction, Person B, after entering the Dwelling, experienced a repeat of the previous symptoms. Person B did not step inside the Dwelling again from this point on. Approximately twelve months after Probate was granted Person A was diagnosed with a serious medical condition. Person A had experienced specific and general symptoms for approximately twelve months prior to their diagnosis. Person A underwent treatment for their medical condition. Over the next six months Person A’s condition was under continuous investigation and treatment. Sometime later Person A underwent further treatments on a daily basis while attempting to work full time. Approximately two years after Probate was granted real estate agent 1 was consulted to update the previous advice given in preparation for sale of the Dwelling. Over the next four months the Dwelling was prepared for sale. Over two years after Probate away was granted and over four years after the deceased passed the Dwelling went to auction and was sold with settlement occurring a number of months later.

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 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 - Detailed reasoning: In certain circumstances, section 118-195 of the ITAA 1997 provides that the trustee of a deceased estate may disregard an assessable gain or loss made from the disposal of a property that passed to them in their capacity as trustee of a deceased estate if: ● the property was acquired by the deceased before 20 September 1985, or ● the property was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased’s main residence just before the deceased’s death and was not then being used for the purpose of producing assessable income, and ● your ownership interest ends within two years of the deceased’s death. The Commissioner has discretion to extend the two year time period 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. 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. | Detailed Reasoning - Application to your circumstances: In this case you were initially delayed in selling the Dwelling due to unforeseen and serious personal circumstances, this included Person A’s child being imprisoned twelve months after the deceased passed away, after prolonged court proceedings which put both emotional and physical stress on both Executors and their families. This coincided with the marriage breakdown of Person B’s child and also placed an emotional toll on the family during the initial two year exemption period. However Probate was granted nearly twelve months after both unforeseen events occurred and approximately two years after the deceased passed away. This twelve month period is seen as sufficient time to regather the capabilities of the Executors and continue to focus on other matters at hand. At this point in time the sale of the Dwelling should have been the main priority of the Executors After Probate was granted the Dwelling was frequented by a number of possums which gained access through a dislodged tile in the roof. This was discovered in approximately one month after probate was granted however it was not until two months after probate was granted that Person B visited the Dwelling to inspect the damage. From this visit Person B had a server allergic reaction. At this time the Executors could have employed cleaners to complete the cleaning process and present the Dwelling to the public for sale. If the maintenance and sale of the Dwelling was conducted in a timely and efficient manner after Probate all indications are that the Dwelling would have been sold within a relatively short period, as shown when the Dwelling was ready for sale it sold within a relatively quickly. We have also taken into account that Person A had been diagnosed with a serious medical condition. Although this diagnosis had an impact on Person A, the diagnosis was approximately twelve months after Probate was granted and at this stage the sale of Dwelling should have been well underway, if not complete. Haven taken the above into consideration we accept that both Executors of the Deceased’s estate had events occur within the two year exemption period which affected their intent to sell the Dwelling, we also accept that the Dwelling needed some repairs to put it in a more saleable position. However the choices made by the Executors have contributed to the delay in the disposal of the Deceased’s Dwelling. The Dwelling should have been dealt with more urgency after Probate was granted as the Executors in their role should have known that the two year exception period had been exceeded. There was a significant period of inactivity towards the Dwelling after Probate was granted which cannot be attributed to unforeseen or serious personal circumstances. | Detailed Reasoning - Conclusion: After considering the facts of this situation it is viewed that the delay in the administration of the Deceased’s estate was contributed to by the choices made by the Executors of the Deceased’s estate. Therefore, it has been determined that the Commissioner’s discretion will not be exercised to extend the two year period as it is viewed that the facts of your situation are not of a nature that would be acceptable for the exercising of the Commissioner’s discretion. As the Commissioner has not exercised his discretion to extend the two year period to dispose of the Deceased’s dwelling, any capital gain or capital loss made on the disposal of the Deceased’s Dwelling cannot be disregarded.

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