Private ruling: Capital gains tax (CGT) – deceased estate – two year extension
Date of advice: 24 April 2018
Published: July 2018
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the dwelling on the property and allow an extension of time until YYY? | A1: Yes

Relevant facts and circumstances: You inherited a property from one of your parents who was domiciled in Country A and passed away in 20XX. Your late parent purchased the property before 20 September 1985 and the property was exclusively used for income producing purposes. In 20XX the relevant authorities in Country A granted probate for the last will of the deceased dated in 19XX. The will appointed you (a child of the deceased) as an executor and Trustee of the estate. The property was rented by two individuals since late 20XX. The same individuals signed a 12 month lease in 20XX. Once the lease expired in 20XX the tenancy continued under continuation clauses in the lease until the same tenants vacated the property early in 20XX. The Trustee did not actively seek new tenants after the existing tenants vacated the property early in 20XX. Following the death of your parent all rental income was primarily used for property management and other property expenses, and no rental income was paid to the beneficiaries. The property was valued at the time of your late parent’s date of death, and the property was also valued a couple of years after that. The newer valuation showed an increase in the property value. Background and reasons for the delay in the sale The estate comprises of assets spread across Country A, Country B and Australia. Early in 20XX a legal suit was initiated in Country A against the Trustee by a person who sought the transfer of several properties of the Estate. This suit was concluded through mediation later in the same year. Late in 20XX a Company based in Country C, in which the deceased held shareholdings and owed substantial sums to the estate, opted to dispose its major assets at a significantly lower price than market value. The Trustee for the estate engaged lawyers and the sale was eventually stopped and the matter was settled between the parties early in 20XX. The Trustee proceeded to apply for reseal / grant of probate in Country B and Australia. Early in 20XX the Supreme Court of a state in Australia decided that resealing of the probate granted in Country A could not be made and instead an application for the grant of letters of administration was required. In 20XX one of the beneficiaries of the estate brought claim against a number of Estate assets to enforce a judicial separation agreement between the deceased and their late former spouse. After considerable exchanges the matter was mediated in 20XX. Following this the Trustee acquired consent from all four beneficiaries of the estate for their appointment as administrator of the Estate in Australia. The Trustee experienced great difficulty in doing this as all of the beneficiaries (including the Trustee) were residing overseas (apart from one who lived in Australia). All relevant documents required for the application for the grant of letters of administration in Australia were eventually compiled in 20XX. Late in 20XX the Supreme Court of a state in Australia issued the grant of letters of administration. Following this the estate was then involved in issues relating to the former spouse of the deceased which were only resolved in 20XX. Since the middle of 20XX to now, the Trustee has received numerous requests and demands from the beneficiaries which made it difficult for them to come to Australia and has further delayed the sale of the unit. In summary, placing the property on the market was delayed largely due to a significant level of complexity in the administration of the estate, which included disputes regarding estate assets.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-195

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 states that if you own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an estate), then you are exempt from tax on any capital gain made on the disposal of the property 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 2 years of the deceased’s death (the Commissioner has discretion to extend this period in certain circumstances). You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed). In this case, the property was purchased by the deceased before 20 September 1985 and it was used to produce income until they passed away in 20XX. The property was not sold within 2 years of the deceased’s date of death. You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the 2 year time period. The Commissioner can exercise his discretion in situations such as where: ● the ownership of a dwelling or a will is challenged; ● the complexity of a deceased estate delays the completion of administration of the estate; ● 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 ● 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 case there was a significant level of complexity in the administration of the estate, and there were disputes regarding estate assets. Having considered the circumstances and the factors outlined above, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time until YYY.