Private ruling: Deceased estates and Commissioners discretion
Date of advice: 17 September 2015
Published: September 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Question and answer: | Will the Commissioner exercise his discretion and allow an extension of time beyond the two year period under section 118-195(1) of the Income Tax Assessment Act 1997 ? | No.

Relevant facts and circumstances: Spouse 1 and Spouse 2 each purchased an interest of a property (the property) as joint tenants. The property was purchased pre 20 September 1985, and was their main residence. The property consisted of a home that was adjacent to land greater than 2 hectares. After the passing of Spouse 1, their spouse inherited the remaining interested in the property. A number of years later, the Spouse 2 passed away willing ownership of the property to their beneficiaries. The property remained the main residence of the Spouse 2 until their death. After the passing of Spouse 2, the beneficiaries arranged for the property to be put on the market as soon as possible. This occurred a number of months later. A contract to sell the property was made X months after the death of Spouse 2. The beneficiaries encountered difficulties when attempting to dispose of the property due to it being a rural property and also due size of the land. The property was disposed of beyond 2 years of the deceased's passing.

Relevant legislative provisions: Income Tax Assessment Act 1997 S ection 102-20. | Income Tax Assessment Act 1997 S ection 104-1. | Income Tax Assessment Act 1997 S ection 108-5. | Income Tax Assessment Act 1997 S ection 118-95.

Reasons for decision: Summary: You make a capital gain or a capital loss if and only if a capital gains tax (CGT) event happens to a CGT asset under section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997). Property is a CGT asset under section 108-5 of the ITAA 1997. CGT event A1 occurs when you dispose of the CGT asset to someone else under section 104-10 of the ITAA 1997. Generally a capital gain or loss that results from an asset you acquired before 20 September 1985 is exempt from capital gains tax. | Detailed Reasoning - Deceased estates: Subdivision 118-B of the ITAA 1997 includes provisions about an exemption from CGT which apply to main residences as well as specific rules in regard to dwellings which you acquire as the executor or beneficiary of a deceased estate. Subsection 118-195(1) of the ITAA 1997 provides that a capital gain or loss can be disregarded when you sell a deceased persons dwelling that you acquired as the beneficiary of that persons deceased estate, provided that your ownership interest ends within 2 years of the person's death and either: (a) the deceased acquired the dwelling before 20 September 1985; or (b) if the deceased acquired the dwelling after 20 September 1985, the deceased was using the dwelling as their main residence at the time of their death. In the case of the trustee, the property was not disposed of within 2 years of the deceased's passing. Therefore any capital gain or loss cannot be disregarded under subsection 118-195(1) of the ITAA 1997. | Detailed Reasoning - Commissioner's discretion: A trustee or beneficiary 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. This case does not fall into the category where the delay in disposing of the property prior to 2 years of the deceased's passing was beyond the beneficiary's control . The state of the property market and the nature of the property cannot be described as unforeseen or serious personal circumstances such is described above. Additionally it was eight months before the property was put up for sale. The Commissioner considers that price settings that would have made the property more attractive for prospective buyers that may have led to an earlier sale were within the control of the beneficiaries. Accordingly, the Commissioner will not exercise his discretion to extend the two year period in this case.