Private ruling: Capital gains tax - deceased estate
Published: January 2015
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

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? | A1: Yes

Relevant facts and circumstances: You inherited an interest in a property from the deceased. The deceased acquired the property prior to 1985. Following the deceased's death, the property was tenanted for a period, following this time the property remained vacant. The property was placed on the market after the tenants vacated. Following a period of disagreement between you and the other beneficiaries as to how to deal with the property, it was transferred to you and the other beneficiaries as tenants in common. The property remained on the market and a contract was signed for the sale of the property. The purchaser had requested a settlement date that fell after two years from the deceased's death. The purchaser subsequently asked for a number of extensions to the settlement date; however the contract eventually was cancelled. The property was immediately placed back on the market and a new contract for sale was signed during the 2013-14 income 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 acquired after 20 September 1985 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. In this case, we consider that a reasonable effort was made to dispose of the property within the two year period. Although the initial settlement date agreed to under the first contract was outside of the two year period, this was a requirement of the purchaser and all further delays were also outside of your 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.