Private ruling: Capital gains tax - deceased estate - Commissioner's discretion - two year period
Date of advice: 12 October 2015
Published: October 2015
Ruling period: Income 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 to dispose of the property? | A1: Yes.

Relevant facts and circumstances: The deceased purchased the property before 20 September 1985, which had been their main residence and was never used to produce income. The deceased passed away a number of years later. The deceased's will (the 1 st Will), appointed you as the Trustee and sole beneficiary of the deceased's estate. The deceased's estate included the following: • The property, as outlined above • A second property (Property B); and • Funds held in numerous accounts. While attending the deceased's funeral, you were advised by a relative of the deceased (the Relative), that the deceased had gone to their and had drafted a new will on that day (the 2 nd Will). The 2 nd Will named the Relative as the sole Executor and bequeathed the majority of the deceased's estate to them. In the same month as the deceased's funeral, you received correspondence from a Xtate Government Department which outlined that a caveat had been lodged on the property by the Relative. Around three months after the deceased passed away, the Relative lodged application for Probate of the deceased's estate. From the day after the Relative had lodged the application for Probate, the property was frozen as an asset of a disputed estate matter, making it unable to be sold. Around 24 months after the deceased passed away, the Relative filed an Amended Statement of Claim with the Supreme Court. About three months later, the matter was set down for court annexed mediation with the probate matter being scheduled in the following week. An Affidavit of the Executor, dated over two years after the deceased had passed away, was lodged with the Supreme Court. The matter appeared before the Registrar in the same month that the Affidavit had been lodged, and was then passed to the Probate judge for their consideration as to whether or not the 2 nd Will would be passed over and approval given to the 1 st Will. A number of days later, court orders were issued for the probate of the deceased's estate which was granted in solemn form on that date. The court order granted probate on the 1 st Will. Under the court order, the Relative was to receive a specified amount of money from the deceased's estate payable within a specified number of months after you as the Trustee of the deceased estate had received the grant of probate of the 1st Will, and that the Relative's claims to the deceased's estate were otherwise dismissed. A real estate agreement was prepared around this time, but subsequently had to be replaced due to the probate problem. Probate on the deceased's estate was issued around 28 months after the deceased had passed away. Additional funds belonging to the deceased estate were identified, and an Exemplification for Probate was lodged with the Supreme Court, which was granted around four weeks after probate was issued. The Relative has refused to remove the caveat they put on the property as at the present date. You disposed of Property B, with settlement occurring around three months after probate was issued. The proceeds from the sale of Property B will be used to the Relative in accordance with the court order. The caveat on the property will be removed, allowing the sale of the property free from any encumbrance. You want to undertake the following in relation to selling the property: • Cleaning and preparation of property for sale; and • Engage the services of a real estate agent to undertake a marketing campaign to facilitate the sale of the property. You have made the following statements in the private ruling: • you had always intended to sell the property, but the drawn out legal dispute, and the refusal of the Relative to lift the caveat have significantly delayed the sale of the property • the Commissioner should exercise his discretion to allow an extension of the two year period as the delay in the sale of the property has been due to a long legal dispute. This resulted in probate not being granted until over two years after the deceased had passed away; and • the legal process of the sale of the property and subsequent settlement of the property could be delayed by the holiday break.

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: Summary: 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. In this case, the delay in the disposal of the property is due to the lengthy legal action taken in relation to the deceased estate as disclosed in your private ruling request. As a result of these delays, the sale of the property could not be completed within the two year period after the deceased had passed away. After reviewing the facts of this situation, the Commissioner accepts that it is appropriate to grant the extension that you have requested.