Private ruling: Commissioners discretion
Published: November 2013
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 8 July 2011

Ruling: Q1: Will the Commissioner exercise the discretion to extend the two year rule in regards to the disposal of a deceased's main residence? | A1: Yes

Relevant facts and circumstances: The deceased passed away a few years ago. The deceased owned a dwelling that was her/his main residence just before her/his death. The deceased acquired the dwelling before September 1985. The ownership of the dwelling passed to the trustee of her/his estate on the date of her/his death. A contract for the sale of the dwelling was signed on a date. The dwelling sold and settlement took place on a later date. The house took a long time to sell due to the region the house was located and due to a slowing down of the real estate market.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-195

Reasons for decision: Detailed Reasoning - Capital gains tax: Section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a trustee of a deceased estate to disregard a capital gain or capital loss made from a capital gains tax (CGT) event (eg: sale) that happens in relation to a dwelling where: • The ownership of the dwelling passed to the trustee of the deceased estate on the owner's death, • The trustee was an individual, • The deceased acquired the dwelling before 20 September 1985, and • The interest in the dwelling is disposed of within two years of the deceased's death, or within a longer period allowed by the Commissioner. A trustee of a deceased estate may apply to the Commissioner to grant an extension of the two year time period, where the CGT event happens in the 2008-09 income year or later income years. Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example: • 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 the discretion the Commissioner will also take into account whether and to what extent the dwelling is used to produce assessable income and for how long the trustee or beneficiary held the ownership interest in the dwelling. In your case, the property took a long time to sell due to it being located in a region with low housing sales combined with a slowing down of the real estate market. The dwelling sold and settled only a few days past the two year period from date of death. The delay in selling the dwelling falls into the examples stated above and as such the Commissioner will exercise his discretion to extend the two year rule in regards to the disposal of the deceased's dwelling under section 118-195 of the ITAA 1997 to the settlement date.