Private ruling: Capital gains tax – deceased estate – Commissioner’s discretion to extend the two year period – main residence exemption
Published: March 2018
Ruling period: Year ended 30 June 20BB.
Date scheme commenced: 1 July 20AA.

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 for the disposal of the deceased’s 50% interest in the dwelling? | A1: Yes.

Relevant facts and circumstances: P and E acquired land in 19XX as joint tenants (land). P and E built a dwelling on the land and occupied it as their main residence (dwelling). In 20YY, the joint tenancy held by P and E in the dwelling was amended to a tenancy in common in equal shares. In 20YY, E passed away. Under E’s will, E’s spouse was granted a life interest in E’s estate. On E’s spouse’s death, E’s 50% interest would pass to their child. E’s child C, 50% interest as a tenant in common, along with P’s 50% tenant in common interest in the dwelling was registered with the Relevant Land Title Office in 20ZZ. P continued to reside in the dwelling, while C lived overseas. P passed away in 20XY (deceased). In early 20YZ, the will of the deceased was discovered. Documents to obtain probate were prepared in early 20YZ, but the probate application was delayed due to a number of factors. Probate of the deceased’s estate was issued by the Court in mid-20AA. Due to executors not being able to obtain agreement over the value of the deceased’s dwelling, a further valuation was sought in late 20AA. The sale of Land Contract was prepared in late 20AA and contracts were exchanged in late 20AA. Settlement of the sale contract was scheduled for early 20BB, but was delayed, so original signatures of the executors could be included in the sale of land contract. The dwelling was sold, with the settlement of sale occurring in early 20BB.

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. | 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 sale of dwelling was delayed due to delays encountered in the administration of the deceased’s estate for the following reasons: ● The grant of probate was delayed due to the need to obtain a valuation of the dwelling, obtain an English translation of the Death Certificate to lodge with the probate application and to respond to a requisition issued by the Court on the cause of the deceased’s death. ● There was a delay in preparing the sale of land contract in respect to the dwelling due to the need to obtain a further valuation and to obtain the original signatures from the executors who lived overseas, with one executor living in a remote village. The Commissioner accepts that it is appropriate to grant the short extension that you have requested.