Private ruling: Capital gains tax - deceased estate - 2 year discretion
Published: June 2015
Ruling period: Year ended 30 June 20XX.
Date scheme commenced: 1 July 20XX.

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 settlement on the disposal of the dwelling occurred? | A1: Yes.

Relevant facts and circumstances: The deceased acquired a dwelling (the dwelling) before 20 September 1985, and had resided in the dwelling for a number of years until they had moved into supported accommodation and subsequently passed away a number of years after moving out of the dwelling. The dwelling had been rented out after the deceased had moved out of it and had continued to be rented out for a number of years. Probate had been applied for by the trustees of the deceased's estate around four months after the deceased had passed away. The administration of the deceased estate had been delayed due to the will being challenged, and a Family Provision Claim being lodged by one of the beneficiary's about nine months after the deceased had passed away. Negotiations had taken place between the beneficiaries and a settlement had been reached with Supreme Court orders being handed down around two months later. As a result of the settlement and court order, the dwelling was to be disposed of with the sale proceeds to be divided in accordance with the court order. The trustees placed the dwelling on the market shortly after the court order had been handed down, and the settlement on the disposal of the dwelling occurred about 26 months after the deceased had passed away. Documentation has been provided with this private ruling application, and should be read in conjunction with, and forms part of the description of the scheme for the purpose of this private ruling.

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: Commissioner's discretion under Section 118-195 of the ITAA 1997 Subsection 118-195(1) of the ITAA 1997 provides a capital gains tax (CGT) exemption to a beneficiary or trustee of a deceased estate where a CGT event happens to a dwelling (or an ownership interest in a dwelling) acquired from a deceased estate. An exemption is provided where the beneficiary or trustee's ownership interest in the dwelling ends within two years of the deceased's death and just before the deceased's death (for pre-CGT dwellings) the dwelling was their main residence. The Commissioner has discretion to extend the two year time period in subsection 118-195(1) of the ITAA 1997 where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death. This discretion may be exercised in situations such as where: 1. the ownership of a dwelling or a will is challenged; 2. the complexity of a deceased estate delays the completion of administration of the estate; 3. 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 (for example, the taxpayer or a family member has a severe illness or injury); or 4. settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control. In your submission, you state that the delay and the necessity to dispose of the deceased's dwelling had been due to the Supreme Court order which necessitated the disposal of the dwelling, over which the trustees had no control. We have taken the facts of your situation into consideration when determining whether the Commissioner's discretion would be exercised extend the two year period and allow you to disregard any capital gain or capital loss made on the disposal of the dwelling under subsection 118-195(1) of the ITAA 1997. We accept that the reason for the delay in the disposal of the deceased's dwelling was due above mentioned issues arising during the two year period after the deceased had passed away. Using the guidelines provided, in particular point 1 above, and having considered the relevant facts of your situation, the Commissioner will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit until settlement occurred on the disposal of the dwelling.