Private ruling: CGT – deceased estate – Commissioner’s discretion to extend the two year period
Date of advice: 29 September 2017
Published: February 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? | A1: Yes.

Relevant facts and circumstances: The deceased passed away in 201X. The deceased acquired a dwelling in 200X (the dwelling). The dwelling was the deceased’s main residence. The executors of the deceased’s estate included the deceased’s child and the person who had prepared the deceased’s Will. The deceased’s Will granted a right to reside in the dwelling to A and then the dwelling would pass to the deceased’s grandchildren as tenants in common in equal shares. A moved into the dwelling immediately following the deceased’s death and resided in the dwelling until late 201Y. A’s termination of the right to occupy was due to the deteriorated condition of the dwelling, it being too small for the occupation of children and the emotional stress suffered by A in residing in the deceased’s dwelling. The dwelling remained vacant from the date of A’s termination of the right to occupy interest until the settlement of the sale of the dwelling. The complexity of the wording in the deceased’s Will resulted in A seeking legal advice on the interpretation of the Will and whether to proceed with a family provision claim in the Supreme Court. The relationship between A and the other executor of the deceased’s estate had deteriorated, with the latter seeking to resign and seeking to be indemnified from the proceeds of the sale against expenses incurred. A contract for sale was entered into in mid 201Z to sell the dwelling, but an inspection report revealed considerable structural damage. The condition of the premises delayed the sale of the dwelling, with renovations undertaken to repair structural defects to the dwelling caused by termite damage and internal water leaks. Another contract for sale was entered in mid 201Z and a report of repairs completed was attached to this contract. Settlement of the sale of the dwelling occurred in late 201Z.

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. | 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. The delay in disposing of the dwelling was caused to a number of factors including: ● A delay in the administration of the estate was due to the need to obtain legal advice in relation to the interpretation of the deceased’s Will and whether to proceed with a family provision claim. ● A delay in the sale of the dwelling occurred due to extensive termite damage and the need to repair such damage and obtain a building inspection report as a condition of sale. The Commissioner accepts that it is appropriate to grant the short extension that you have requested.