Private ruling: Capital gains tax - deceased estates
Published: December 2014
Ruling period: Year ending 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 acquired the property prior to 1985. You had been advised by your solicitor that you had two years from the date of probate to sell the property and be exempt from capital gains tax. You had initially offered the tenant of the property the first opportunity to purchase the property. However, they initially declined. Negotiations continued with the tenant but were unsuccessful. After a period of time you placed the property on the market. Shortly after this, the tenant eventually offered to purchase the property.

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

Reasons for decision: Summary: As per subsection 118-195(1) of the ITAA 1997, a capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling or your ownership interest in it is disregarded if: (a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and (b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied. | Detailed Reasoning - And also one of these items: 1 the deceased *acquired the *ownership interest on or after 20 September 1985 and the *dwelling was the deceased's main residence just before the deceased's death and was not then being used for the *purpose of producing assessable income your *ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner ........... 2 the deceased *acquired the *ownership interest before 20 September 1985 the *dwelling was, from the deceased's death until your *ownership interest ends, the main residence of one or more of: (a) the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or (b) an individual who had a right to occupy the dwelling under the deceased's will; or (c) if the *CGT event was brought about by the individual to whom the *ownership interest *passed as a beneficiary - that individual In this case, when the deceased died the property passed to the legal personal representative. The property was acquired by the deceased before 20 September 1985. You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period in which you can dispose of the property. 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. A misunderstanding of how the law applies is not a factor that the Commissioner would consider when exercising the discretion. In this case, there have not been any challenges to the will or ownership of the property. The tenant was offered an opportunity to purchase the property, however they initially declined. The property was formally placed on the market more than two years from the date of death. You have argued that you misunderstood the application of the two year period contained in subsection 118-195(1) of the ITAA 1997 as a result of advice given by your solicitor. On its own, this is not an acceptable reason for the Commissioner to exercise his discretion. Having considered the relevant facts, the Commissioner will not apply his discretion under subsection 118-195(1) of the ITAA 1997 to allow an extension to the two year time limit.