Private ruling: Capital gains tax – deceased estate – Commissioner’s discretion to extend the two year period – main residence exemption
Date of advice: 27 September 2016
Published: November 2016
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

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: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The deceased acquired a dwelling located in 1998. The deceased passed away in 2014. The dwelling was used by the deceased as a main residence from the date of acquisition to the date of their passing. The dwelling was not used to produce income after the deceased passed away. A Will dated prior to 1998 appointed the deceased’s former spouse as the executor and beneficiary of the deceased’s estate. In the alternative a firm of solicitors were to be appointed as the executors. Alternative beneficiaries of the deceased’s parent’s, and the deceased spouse’s parents, were also named in the Will. The deceased and their spouse divorced in 2000. As the dissolution of the marriage occurred after the Will had been created, the effect on the Will was that it should be read as if the deceased’s spouse had died on the date of the termination of the marriage. That is to say, the Will would still stand. The deceased’s parents, and the parents of the deceased’s spouse all predeceased the deceased. As no beneficiaries under the Will remained alive, the executors identified a number of individual beneficiaries who would be entitled to an equal share of the estate under the Administration and Probate Act 1919 (SA) , which sets out the rules of distribution of a partially intestate estate. During administration, the Executors found a separate document dated 2000 (the 2000 document) which purported to revoke the previous Will. This document did not appoint executors, gave specific gifts to a number of parties, and was not validly executed. The people who would benefit under the 2000 document were not the same people who would benefit under the Will (as identified by the executors). At this point the Executors sought guidance from the Supreme Court to determine which document was valid. With direction from the Court and from the Register of Probate, citations were issued to various people named in the 2000 Document. A number of these people came forward to support that the 2000 document should be accepted as the correct Will of the Deceased. The matter was called before the Court in 2016, with the Executors appearing before the Register of Probates. It was held that the Will should stand, and that the 2000 document should be disregarded. Probate was granted to the Executors on 8 June 2016 and they recommenced administering the estate again. The dwelling sold at auction shortly afterwards and settled within five weeks.

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: 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 until 20 September 2016. 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 case, the delay in disposing of the dwelling was due to the complexity of the deceased estate which delayed the completion of the administration of the estate. This delay prevented you from disposing of the dwelling within the two year time limit. The Commissioner accepts that it is appropriate to grant the short extension that you have requested, being two years and six months after the deceased’s death.