Private ruling: Capital gains tax - deceased estate - Commissioner's discretion to extend the two year period - main residence exemption
Date of advice: 21 October 2016
Published: February 2017
Ruling period: Year ended 30 June 20YY.
Date scheme commenced: 1 July 20XX.

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 until 30 June 20YY? | A1: Yes.

Relevant facts and circumstances: The deceased acquired the dwelling before 20 September 1985. The deceased passed away sometime during 20WW. The dwelling was the deceased's main residence at the time of death and it was not being used for income producing activities. No income has been received from the dwelling after the passing of the deceased. A and B are the only surviving children of the deceased. The deceased's Will named A, B and C as executors and directs the executors to employ LLL Lawyers to prove the will. C was a partner at LLL Lawyers, when LLL Lawyers merged with another firm C retired and moved away. A and B started probate proceedings in 20ZZ but were unable to locate C until contact (and response) was made over a year later. During this time A was involved in a marriage and financial breakdown and was overseas during for part of 20WW and then for a number of months in 20ZZ. Probate was granted on 20XX and the dwelling was distributed evenly to A and B (50% each). A intends to dispose of their 50% share in the dwelling by transferring their interest to B at their earliest convenience (once the ruling has been issued).

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 | Income Tax Assessment Act 1997 subsection 118-195(1)

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 30 June 20YY. | 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 C was named as one of the executors and had retired and moved away when the law firm she/he was working for merged. The absence of this executor delayed obtaining probate until she/he could be contacted nearly two years after the death of the deceased. You, as one of the executors were distracted by the collapse of your marriage, subsequent overseas travel, and dealing with the financial impact of the event. As a result of the delays, the beneficiaries could not dispose of the dwelling within the two year time limit. The delay in disposing of the dwelling was due to you being unable to attend to the deceased estate due to unforeseen circumstances arising during the two year period. The Commissioner accepts that it is appropriate to grant the short extension that you have requested.

ATO view documents: Guide to Capital Gains Tax Nat 4151 | Other references (non ATO view): Explanatory memorandum to the Taxation Laws Amendment Bill (No.9) of 2011 (Cth) | Explanatory memorandum to the Taxation Laws Amendment Bill (No.3) of 1997 (Cth)