Private ruling: CGT - deceased estate
Published: December 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Will the Commissioner exercise his discretion to extend the two year exemption period under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: The deceased owned a property. The house was the main residence of the deceased before their death and had not been used to produce income at any stage. Following the deceased death, one of the beneficiaries queried the cause of death with the police which gave rise to a coroner's enquiry, which in turn meant a long delay in the issuing of a death certificate. The beneficiaries insisted on listing every item in the house and also got valuations done of all the artworks and separate valuations done of the furniture before applying for probate. Probate was granted approximately ten months after the deceased death. The executor's allowed the deceased spouse to remain in the house until the tenant left their flat. This took six months. A weather event then damaged part of the property. It took some months for this to be repaired. Approximately a year after the deceased death, the local council confirmed that a pool fence was obligatory. A building application was lodged approximately seven months later and a further two months later the fence was installed. Over two years after the deceased death, the distribution of the Assets of the Estate was disputed. This led to numerous court hearings and an eventual mediation order by the orders. The property was sold and settled approximately three and half years after the deceased death.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 118-195(1)

Reasons for decision: Summary: Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that if you are an individual who owns a dwelling in a capacity as trustee of a deceased 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 on or after 20 September 1985 and the property 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; or the property was acquired by the deceased before 20 September 1985; and · your ownership interest ends within 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances). 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 were a number of reasons for the delay in selling the property. These include: · a coroner's enquiry resulting in a delay in issuing the death certificate · the beneficiaries requesting several inspections of the house and contents · the beneficiaries requesting a list of the items in the house and valuations for certain items · a block on probate taken out by one of beneficiaries which delayed the granting of probate by a month · allowing the spouse to remain in the house for six months · repairing damage to the property due to a weather event · installing a pool fence which took nine months · court hearings and a mediation order by the courts. Consequently, the property was sold approximately 18 months after the two year exemption period expired. While we acknowledge that these events delayed you selling the property, the majority of the delays were not due to circumstances necessary for the property to be sold. For example, completing repairs are not a necessary prerequisite for a property to be sold or prevent a property from being sold. The repairs simply enable you to maximise the value of the property. Consequently, the majority of the delays that caused the sale of the property to exceed the two year limit are of a different nature to the situations in which the Commissioner can exercise his discretion where the sale of a property is unable to be completed due to reasons outside of the trustee's or beneficiary's control. Therefore, having considered the relevant circumstances, the Commissioner will not exercise his discretion and extend the two year time limit.

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