Private ruling: Capital gains tax - deceased estate - 2 year discretion
Date of advice: 26 June 2015
Published: June 2015
Ruling period: Year ending 30 June 2016.
Date scheme commenced: 1 July 2015.

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 purchased the property before 20 September 1985, and it had been their main residence throughout their ownership period and had not been used to produce income. The deceased passed away in 2011. The deceased made a number of wills prior to their passing away. Legal action had been undertaken by the beneficiaries of the estate in relation to the wills made by the deceased which had delayed the administration of the estate. One of the deceased's children had resided in the property and legal action had to be undertaken to have them vacate the property so that it could be disposed of in accordance with a Court order. A contract of sale for the disposal of the property has been entered into with settlement occurring a number of months later. You have provided a number of documents with the private ruling application, which should be read in conjunction with, and form part of the description of the scheme for the purpose 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: 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 challenging of the wills and the refusal of the deceased's child to move out of the property to enable it to be disposed of. 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 issues arising during the two year period after the deceased had passed away. 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.