Private ruling: The Commissioner’s discretion to extend the two year time limit to dispose of a dwelling
Date of advice: 11 December 2018
Published: April 2019
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 9 February 20XY

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: The deceased and Person Y acquired a property which is more than two hectares before 20 September 1985. The deceased and Person Y owned the dwelling as tenants in common in equal shares. Both owners passed away on different dates and they died intestate. After the deceased’s death, there were disputes regarding who were the deceased’s next of kin and who was entitled to apply for a grant of representation. Person Z was subsequently identified as a relative and the Court granted letters of administration to Person Z. The solicitors acting for the trustee of the deceased’s estate later experienced difficulty in obtaining instructions from Person Z. It was later found that Person Z did not have the ability to act as the administrator of the deceased’s estate. Person W obtained an order of guardianship to act on Person Z’s behalf. The solicitors applied for letters of administration on behalf of Person W as substitute administrator. Further delays were encountered in relation to Person W obtaining letters of administration. Sometime later, Court granted letters of administration to Person W. The solicitors also faced some delay in contacting Person Y’s family and legal representative in obtaining a grant of representation for Person Y’s estate to facilitate the sale of the property. The dwelling was sold under contract and settled more than two years after the deceased’s date of death. The dwelling has not been used to generate income. The dwelling was the main residence of the deceased at the time of the death. The dwelling is located on land that is more than two hectares.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 118-120 | 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) | Income Tax Assessment Act 1997 section 128-10 | Income Tax Assessment Act 1997 section 128-15 | Income Tax Assessment Act 1997 section 128-20

Reasons for decision: 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. The exemption applies to the relevant ownership interest of the deceased in the dwelling and up to two hectares of the land on which the dwelling stands and the adjacent land. The remainder will be subject to capital gains tax (CGT). | 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 your case, there were a number of factors which were beyond the control of the administrators for both X and Y’s estates. First, both owners of the property died intestate leaving issues on distributing the estates. Second, there were disputes in finding the deceased’s next of kin who should apply for administration. These delays were further aggravated by the deceased administrator’s capacity issues and the subsequent need to apply for another grant of administration. These circumstances prevented you from disposing of the dwelling within the two year time limit. The Commissioner accepts that it is appropriate to grant the extension that you have requested. | Detailed Reasoning - Land adjacent to a dwelling: Main residence exemption applies to a dwelling’s adjacent land if the same CGT event happens to that land or your ownership interest in it as if it were a dwelling. Land adjacent to a dwelling is its adjacent land to the extent that the land was used primarily for private or domestic purposes in association with the dwelling. The land a dwelling is actually on is included as part of the dwelling and is not part of adjacent land. The maximum area of adjacent land covered by the exemption for the CGT event is two hectares, less the area of the land immediately under the dwelling. In this case, where the adjacent land was used for private purposes and is greater than two hectares, you can choose which two hectares are exempt and the remainder will be subject to CGT.