Private ruling: Capital gains tax – deceased estate – Commissioner’s discretion to extend the two year period – main residence exemption
Date of advice: 21 July 2017
Published: November 2017
Ruling period: Year ended 30 June 2017.
Date scheme commenced: 22 September 2010.

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 until the requested date? | A1: No.

Relevant facts and circumstances: The deceased passed away more than two years ago intestate. The deceased owned an interest in a property (the dwelling). The deceased owned the property with their siblings, as tenants in common. The deceased acquired their interest in the property after 20 September 1985. At the time of their death, the dwelling was the main residence of the deceased. The dwelling was the main residence of one of the deceased’s siblings up until their death some years later. Another sibling of the deceased resides outside of Australia. In relation to the delay in administration of the estate you have provided the following: ● Upon the passing of the deceased overseas, both siblings of the deceased would not have been aware of the need to take any action in Australia. ● Probate in relation to one of the deceased’s siblings’ estate was obtained several years later. ● It took some time for the grant of administration to come through in relation to the deceased’s sibling’s estate. Letters of Administration were granted several years after the passing of the deceased. The dwelling has not been used to produce income and has remained vacant since the death of the death of the deceased sibling. The dwelling was recently sold, with settlement occurring shortly after.

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 Commissioner will not exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time. | 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 this situation, the delays experienced in administering the estate are not considered to be sufficiently complex to explain the lengthy delay. You have provided that the siblings of the deceased would have been unaware of the actions they should have taken upon his death with respect to the estate. You contend that Letters of Administration for the deceased estate could not be obtained until after the administration of the deceased sibling’s estate, however there was no impediment to an application being made immediately following the deceased’s death, allowing for the administration of the estate. It is not considered that the other ownership interests in the dwelling, occupation by the deceased’s sibling until their death and delay in the administration of the deceased sibling’s estate provide a reasonable explanation for the delay. Having considered the relevant facts, the Commissioner will not apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.