Private ruling: CGT – deceased estate – extension of time
Date of advice: 13 July 2018
Published: September 2018
Ruling period: Year ending 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 for the estate to obtain the main residence exemption? | A1: Yes

Relevant facts and circumstances: The deceased passed away in mid 20XX. The deceased’s principal place of residence became part of the deceased estate The deceased acquired the property around 19XX. Late 20XX, the deceased two children had a caveat placed over the property, preventing any sale by the executor of the estate. The property was not rented. Probate was granted to the executor of the estate in mid 20XX. Late 20XX, the children lodged a motion to contest the deceased’s will. A judicial settlement conference was held at the Relevant Court in mid 20XX with no agreement reached. Terms of settlement were signed between the executor of the estate and the children late 2XXX. The property was sold with a contract date of late 20XX. Settlement occurred on early 20XX and the proceeds of the sale were distributed to the deceased estate.

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

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 allows you to disregard a capital gain (or loss) made on the disposal of a property acquired from a deceased estate, if certain conditions are satisfied. The conditions relevant to your circumstances are: ● the deceased acquired the ownership interest on or after 20 September 1985 and the dwelling was the deceased’s main residence just before their death and was not then being used to produce assessable income and ● your ownership interest ends within two years of the deceased’s death, or within a longer period allowed by the Commissioner. In this case, the property that was the main residence of the deceased was acquired around 19XX. The property will be sold outside the two year period outlined in subsection 118-195(1) of the ITAA 1997. 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 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. | Detailed Reasoning - Application to your circumstances: In this case, two children of the deceased took legal action to delay the sale of the property and to contest the will. As a result, the estate was unable to dispose of the property. A judicial settlement conference was held but did not resolve the matter. Eventually, the executor of the estate and the children came to an agreement and the property was sold with settlement taking place approximately 6 months later. Having considered the relevant facts, 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 until early 20XX.