Private ruling: Capital gains tax - deceased estate - Commissioner's discretion
Date of advice: 16 December 2015
Published: February 2016
Ruling period: Income year ending 30 June 20XX
Date scheme commenced: The scheme has commenced

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 to dispose of the property until settlement occurred? | A1: Yes.

Relevant facts and circumstances: The deceased divorced their spouse (the ex-spouse) and ownership in the dwelling was changed to tenants in common, with both granted a life interest in the dwelling The deceased passed away a number of years later. You, a relative of the deceased, were appointed as the Trustee of the deceased's estate. The deceased's ex-spouse continued to reside in the dwelling until they passed away a number of years later. The executor of the deceased's ex-spouse had predeceased them, and the deceased's ex-spouse did not have any relative living in Australia. The deceased's ex-spouse had not been on good terms with the deceased's family, including you as the executor of the deceased's estate, and had prevented you and the deceased's family from gaining access to his effects while they were alive. Once the deceased's ex-spouse had passed away, you were able to obtain access to the dwelling and had begun the process of preparing the dwelling for sale. You spent around two years attempting to find any surviving relatives of the deceased's ex-spouse in their native country, but found it extremely difficult due to having no addresses and the beneficiary named in the deceased's ex-spouse's will was a very common name in their native country. You travelled interstate to the dwelling to search through the records kept in the dwelling to search for anyone who could be the beneficiary of the deceased's ex-spouse, and could seek Letters of Administration to have an executor appointed to administer the deceased's ex-spouse's estate. The dwelling was in the process of being condemned by the local council and you had been looking after the dwelling, to safeguard the deceased's interest in the dwelling, and the whole dwelling in an attempt to prevent the dwelling from being condemned by the local council, while waiting to be in the position to put the dwelling on the market. A letter was found in the letterbox of the dwelling around two years after the deceased had passed away which enabled you to locate the spouse of a surviving relative of the deceased's ex-spouse (the beneficiary). The beneficiary had to engage a solicitor located in Australia who spoke the beneficiary's native language to enable them to be appointed as the executor of the deceased ex-spouse's estate, lodge the Letters of Administration and get probate granted on the estate. It took several months for the beneficiary of the deceased's ex-spouse to complete these activities and it was not until the time that the legal owner of the 50% tenant in common ownership interest in the dwelling formerly held by the deceased's ex-spouse could be established before the dwelling could be legally listed for sale. Once the ownership interest in the dwelling had been established, legal representatives from both estates had listed the dwelling on the market. Settlement on the disposal of the dwelling occurring around over 24 months after the deceased's ex-spouse had passed away.

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: The Commissioner will exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time until settlement on the disposal of the dwelling occurred. | Detailed Reasoning - Detailed reasoning: The capital gains provisions allow for concessional treatment to be given to a dwelling that was owned by a deceased person if the executors of the deceased person's estate sell that dwelling within two years of the date of death. Any capital gain or capital loss made on the sale of such a dwelling is disregarded if the dwelling was: • Acquired by the deceased before 20 September 1985, or • The deceased's main residence when they died The Commissioner has the discretion to extend the two year period. This extension is generally only granted where the executors are merely arranging the ordinary sale of the dwelling and the cause of the delay is beyond their control (for example, if the will is challenged). There must not be any other factors mitigating against, exercising it. In this case, the dwelling could not be disposed of until the deceased's ex-spouse passed away, or if they relinquished their life interest in the dwelling, when that occurred. The deceased's ex-spouse passed away a number of years after the deceased had passed away, and at that date the life interest in the dwelling ended. The Commissioner accepts that prior to that date the dwelling could not be disposed of by the Trustee of the deceased's estate. The delay in the disposal of the unit after the deceased's ex-spouse had passed away was contributed to due to the executor of the deceased's ex-spouse's estate predeceasing them, their having no relatives in Australia, and the time spent searching for a living relative of the deceased's ex-spouse. Also, the time required in relation to the beneficiary of the deceased's ex-spouse being appointed as the executor of their estate, and obtaining the Letters of Administration and getting probate granted. Once probate on the deceased's ex-spouse's estate had been granted, the dwelling had been put on the market and settlement on the disposal of the dwelling had occurred shortly after it had been put on the market. Based on the information provided with the request, and after reviewing the facts of this situation, the Commissioner accepts that it is appropriate to grant the extension that you have requested.