Private ruling: CGT - disposal - deceased estate extension of time
Date of advice: 10 May 2016
Published: June 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

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: No.

Relevant facts and circumstances: The deceased purchased an investment property prior to 20 September 1985. The deceased passed away in 200X. The property was left to you in the deceased's Will. The Will was contested in court by several of your siblings and the matter was eventually settled in court. The property was later transferred to you. The property was rented with a long term, disabled tenant. The property was sold with settlement occurring in 201X.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-195.

Reasons for decision: Summary: Subsection 118-195(1) of the 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 before 20 September 1985; and • your ownership interest ends within two years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances). In your case, the deceased acquired the property before 20 September 1985 however your ownership interest did not end within 2 years of the deceased's death. Therefore, you will only be able to disregard the capital gain from the sale of the property if the Commissioner grants an extension to the two year time limit. 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 exercising the discretion the Commissioner will also take into account whether and to what extent the dwelling is used to produce assessable income and for how long the trustee or beneficiary held the ownership interest in the dwelling. In your case, the will was contested and the property was transferred into your name several years after the deceased's death, we accept that this was out of your control. However, after the property was transferred into your name, you continued to hold the property as a rental property for another X years before listing the house for sale. You contend that your circumstances are within the situations where the Commissioner would exercise his discretion. However, we do not believe this to be the case. Having a tenant in a rental property is not a valid reason for the Commissioner to apply his discretion. Having considered the particular circumstances of this case, the Commissioner is unable to apply his discretion under subsection 118-195(1) of the ITAA 1997 to allow an extension to the two year time limit. Therefore the capital gain made on the disposal of the property will not be able to be disregarded entirely.