Private ruling: Capital gains tax – deceased estate – Commissioner’s discretion
Date of advice: 18 January 2018
Published: May 2018
Ruling period: Year ended 30 June 2018.
Date scheme commenced: 1 July 2017.

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 acquired a dwelling before 20 September 1985. The dwelling was the deceased’s main residence. The dwelling was not used to produce assessable income. The deceased and their spouse were involved in a serious accident resulting in significant injuries for the deceased. The deceased continued to reside in the dwelling after the accident, and following the death of their spouse. The deceased passed away. Probate was granted to the trustee, a relative of the deceased, under the Will. The Will provided a two year right of occupation at the dwelling to the trustee and another adult relative who suffers from an illness and resides at a hospital. The trustee resided in the dwelling with the deceased prior to their death and remained living there for several years after the deceased’s death. Proceedings commenced in the Relevant Court of State A by X relatives of the deceased seeking an Order for the revocation of the Grant of Probate to the trustee on the basis the deceased lacked testamentary capacity and did not know or approve the contents of their Will. Sometime later the adult relative who resided in a hospital, by their Tutor NSW Trustee & Guardian, filed a summons for further provisions from the Estate. Several months later, the judgement found that the deceased did not have the testamentary capacity to make the Will or a prior Will, and revoked the Grant of Probate. Orders were made to appoint the Administrator of the Estate of the deceased and a direction given for the Hearing of the Family Provisions claims of each of the deceased’s X relatives. Letters of Administration were issued by the Relevant Court of State A to the Administer. Final Orders were made with the consent of the parties including a right for the Trustee to remain in the dwelling for a further period of time. The Administrator signed with a real estate agent to commence marketing of the dwelling. A contract of sale was signed. Settlement took place X years after the deceased’s death.

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 to the 2 year period. | 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. In your submission, you state that delay in disposing of the dwelling was due to the legal dispute, however, once an Administrator was appointed, all efforts were made to sell the dwelling as quickly as possible. We have taken the facts of your situation into consideration when determining whether the Commissioner’s discretion would be exercised to extend the two year period and allow you to disregard any capital gain or loss made on the disposal of the dwelling under subsection 118-195(1) of the ITAA 1997. We accept the reasons for the delay in the disposal of the deceased’s dwelling was due to the above mentioned issues arising during the two year period after the deceased had passed away. Two and a half years had passed by the time the legal dispute had been resolved and an Administer had been appointed. Once appointed, a real estate agent was engaged, and the dwelling was sold within X months. The Commissioner accepts that it is appropriate to grant the extension that you have requested.