Private ruling: Capital gains tax - deceased estate - Commissioner's decision - two year period
Date of advice: 14 April 2016
Published: June 2016
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the Commissioner, exercise 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 died in the relevant financial year. The property was initially purchased prior to 20 September 1985. The property was the main residence of the deceased when they passed away. The land is greater than 2 hectares. The child of the deceased is the sole executor and beneficiary of the estate. The executor of the deceased owns the property adjacent to the deceased's property. The executor intends to acquire a portion of land through boundary realignment. As they wish to keep part of the deceased's property. The executor intends to sell the remaining portion of land with the dwelling to a willing buyer. The executor has serious health issues which have prohibited them from earning an income as well as performing duties. The deceased made a promise to the executor's children that they would inherit a specified amount. The executor intends to sell part of the deceased's property, to obtain funds to meet basic living expenses, as they are currently earning no income. The executor also intends to sell the property so that they can provide a specified amount to their children, which was promised by the deceased. There have been disputes between the executor and their children since the deceased's passing. The executor wishes to extend the two year period by an additional three years.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-130(3), | Income Tax Assessment Act 1997 section 118-195 and | Income Tax Assessment Act 1997 subsection 118-195(1).

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 states that if you own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an estate), then you are exempt from tax on any capital gain made on the disposal of the property if: • the property was acquired by the deceased before 20 September 1985, or • the property was acquired by the deceased 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, and • your ownership interest ends within 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances). You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed). In this case, the property was purchased by the deceased before 20 September 1985 and was their main residence until they passed away in the relevant financial year. The property was not sold within 2 years of the deceased's date of death. You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the 2 year time period. The Commissioner can exercise his discretion 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. | Detailed Reasoning - Application to your circumstances: In your case while we understand that due to your personal circumstances there are some reasonable grounds for the Commissioner to potentially exercise discretion, the Commissioner still wouldn't normally extend the two year period for a specified significant period of time. In this case the Commissioner would not exercise their discretion and extend the two year period by an additional three years. This is why we suggest to taxpayers that they apply for a private ruling after settlement of the property has occurred. This is so that we are able to make a more informed decision regarding an extension to the two year period. Furthermore the Commissioner would not normally exercise their discretion where: • the property has not been placed on the market for sale until after 2 years has passed; • modification or subdivision of the property was undertaken by the executor which is not contemplated or required by the deceased's will. As the property has not been put on the market within two years, and as you intend to modify the property through boundary realignment which has not been contemplated or required by the deceased's will, the commissioner would not normally extend exercise their discretion and extend the two year period. Having considered the relevant circumstances, the Commissioner will not exercise his discretion and extend the 2 year time limit.