Private ruling: Deceased estate
Published: April 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

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: You are the executors of the estate of your neighbour. The deceased purchased the property prior to 20 September 1985 and used it as their main residence until their death. You instructed solicitor's who acted in the administration of the deceased estate. As the deceased had no family, it was first necessary to identify all of their assets and secondly determine their share portfolio details which proved to be quite extensive. This process required lengthy correspondence between your solicitors and the various share registries. An application for a grant of probate was lodged. Requisitions were made by the New South Wales Supreme Court and probate was granted. A transmission application was lodged with the land titles office and a new certificate of title for the deceased's property was issued. You did not reside in the property or use the property to produce assessable income at any point in time following the deceased's death. The property was sold with settlement occurring during the relevant financial year. Your previous accountant had advised you would meet the 2 year condition if the property was disposed of within 2 years of taking legal title of the property. Accordingly, you believed you had met the requirement. However, your new accountant advised that this was not the case. You included the capital gain in your relevant income tax assessment.

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

Reasons for decision: Summary: As per subsection 118-195(1) of the ITAA 1997, a capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling or your ownership interest in it is disregarded if: (a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and (b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied. | Detailed Reasoning - And also one of these items: 1 the deceased *acquired the *ownership interest 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 your *ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner ........... 2 the deceased *acquired the *ownership interest before 20 September 1985 the *dwelling was, from the deceased's death until your *ownership interest ends, the main residence of one or more of: (a) the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or (b) an individual who had a right to occupy the dwelling under the deceased's will; or (c) if the *CGT event was brought about by the individual to whom the *ownership interest *passed as a beneficiary - that individual In this case, when the deceased died the property passed to the legal personal representatives. The property was not used to produce assessable income and it was the deceased's main residence just before their death. You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period in which you can dispose of the property. The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion: · 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 (eg 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 reasons outside the beneficiary or trustee's control. In determining whether or not to grant an extension the Commissioner is expected to consider whether and to what extent the dwelling is used to produce assessable income and how long the trustee or beneficiary held it. In this case, you have argued that you misunderstood the application of the two year period contained in subsection 118-195(1) of the ITAA 1997 as a result of advice given by your previous accountant. On its own, this is not an acceptable reason for the Commissioner to exercise his discretion. However we consider that the complexity of the estate contributed to the delay in the sale of the property. As the deceased had no family members, the full extent of their estate was unknown and this caused some delays in probate being granted. Ultimately, the property was disposed of two years and seven days after probate was granted. Having considered the relevant facts, and the period of time in question, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.