Private ruling: Capital Gains Tax - Deceased Estate - Main Residence Exemption – Commissioner’s Two Year Discretion
Date of advice: 31 August 2016
Published: October 2016
Ruling period: Period ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Commissioner exercise his discretion to extend the time period in subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) where the trustee or beneficiary of a deceased estate’s ownership interest ends more than two years from the deceased’s death? | A1: No

Relevant facts and circumstances: The deceased passed away on a date in 201X. The executor was appointed under the deceased’s will. The deceased’s estate included a dwelling. The deceased acquired the dwelling before 1985, making it a pre-CGT asset. The dwelling was the deceased’s main residence. The property was rented from 200Y to unrelated tenants. The executor experienced difficulty in accessing records to administer the estate, and in dealing with the property which was located several hundred kilometres distant to them. The executor also had difficulty in communicating with the beneficiaries, one of whom was uncontactable for a large part of the two year period. The executor was not aware of the two year time limit to complete the sale. The property was listed for sale for around four months before it was sold. The property was sold on a date in 201Z, more than two years after the deceased’s date of death.

Relevant legislative provisions: Subdivision 115-A of the Income Tax Assessment Act 1997 Section 118-195 of the Income Tax Assessment Act 1997 | Section 118-200 of the Income Tax Assessment Act 1997 | Explanatory memorandum to the Taxation Laws Amendment Bill (No.9) of 2011 (Cth)

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 allows a trustee of a deceased estate to disregard a capital gain or loss from a dwelling that a deceased person acquired after 20 September 1985 if: ● the dwelling was a pre-CGT asset at the time of the deceased's death; or ● the dwelling was the deceased’s main residence at the time of death, and not being used for income producing purposes; and also: ● your ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner. In your case, the dwelling was a partial pre CGT asset as well as the deceased’s main residence just before their death. The Explanatory Memorandum for the Tax Laws Amendment (2011 Measures No. 9) Act 2012 explains the Commissioner would be expected to exercise discretion (in sections 118-195 and 118-200) in situations such as where: ● 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 (for example, 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 circumstances outside the beneficiary or trustee's control. These examples are not exhaustive. In exercising this discretion, the Commissioner is expected to consider whether and to what extent the dwelling is used to produce assessable income and the period that the trustee or beneficiary held the ownership interest in the dwelling. | Detailed Reasoning - Application of Commissioner’s discretion in your case: In your case, having considered the relevant facts, the Commissioner is not able to exercise his discretion under subsection 118-195(1) of the ITAA 1997 to grant an extension of the two year time limit. The affairs of the estate were not excessively complex. There were no legal complications or challenges to the will. The executor had no significant health issues. There were no undue delays in the sale process. In addition to the above, the dwelling was rented and earned assessable income during the entire period it was in the estate. Accordingly there are no grounds to extend the two year period.