Private ruling: Capital gains tax
Published: February 2015
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

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 November 2014? | A1: Yes.

Relevant facts and circumstances: The deceased spouse passed away in 20XX. The spouse was the sole owner of a property. Upon the spouse's death, the family did not realise that the title was not jointly held with the deceased. The spouse's will gifted the whole of their estate, both real and personal, to the deceased. The property was the deceased's main residence and was not used to produce income. The deceased passed away in the 2011-12 financial year. After the passing of the deceased, the executors applied to the Supreme Court for probate in order to dispose of the property. The initial lawyer passed away before probate was granted. A second lawyer from the same firm was appointed, however it took X months to complete an application for probate. The executors determined, before the submission of the application, this it was of poor quality and unlikely to succeed. The executors subsequently arranged for the files to be transferred to another legal firm. The property was sold and settlement occurred in the 2014-15 financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 118-195(1)

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 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). The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion: • 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 (eg 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 reasons outside the beneficiary or trustee's control. Having considered the particular circumstances of this case, the Commissioner will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.