Private ruling: Capital gains tax - deceased estate - request for Commissioner's discretion
Date of advice: 26 November 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 on the disposal of the property? | A1: Yes.

Relevant facts and circumstances: The deceased entered into a retirement village lease after 20 September 1985, in relation to a unit located in the retirement village. The unit was the deceased's main residence until they were admitted to high level care at a nursing home around ten years after they had moved into the unit. The deceased made the absence choice to continue treating the unit as their main residence after they had moved out of the unit. Upon moving out the of unit, the deceased had made it available to the retirement village to enable it to be re-leased to a new occupant Around thirteen months after moving out of the unit, the deceased passed away. The Trustees appointed to administer the deceased's estate had promptly put the unit on the market for an asking price around the same price as was being asked for similar units in the retirement village. The unit remained vacant and was not sublet after the deceased had vacated it. An expression of interest (EOI) was received for the unit at the agreed sale price around two months after the deceased had passed away, however the EOI was withdrawn. Around five months after the deceased passed away, the manager of the retirement village advised that a real estate agent had been appointed on that date to assist with the sales of retirement units. The manager stated that it was proving to be a difficult climate to sell units and that a revaluation of the retirement village had been undertaken around two months prior when the unit had been valued at an amount lower than the asking price. The manager had suggested that the unit be kept on the market at the current asking price so that there would be some bargaining power. It had been stated that the retirement units were being advertised via various methods. Around 14 months after the deceased had passed away, the manager of the retirement village advised that they were continuing with the marketing and advertising of retirement units through various methods. The sale of properties, similar to deceased's unit, continued to be slow and the manager had queried whether the Trustees wanted to reconsider the resale value of the unit. About 17 months after the deceased passed away, the manager of the retirement village had advised that they were commencing another marketing campaign. Around 25 months after the deceased passed away, the manager of the retirement village had been advised that the Trustees wanted to reduce the asking price for the unit. About 29 months after the deceased passed away, the manager of the retirement village advised that the properties similar to the deceased's unit continued to be the most difficult to sell. An offer was received for the unit around 32 months after the deceased had passed away, which was lower than the asking price. The manager of the retirement village had suggested a counter offer be made. At that time they currently had seven similar apartments for sale. Around 33 months after the deceased passed away, the manager of the retirement village was instructed by the Trustees to accept the offer rather than make a counter-offer of a higher price. About two weeks later, the Trustees were advised by the manager of the retirement village that the offer had been withdrawn and that they would continue to advertise the unit. Around 38 months after the deceased had passed away, the manager of the retirement village informed the Trustees that they had accepted an offer for the unit at the asking price. Settlement on the disposal of the unit occurred around 39 months after the deceased had passed away. During the period that the Trustees had been attempting to dispose of the unit there had been several units available for sale that were similar to the deceased's unit, with the same or similar asking prices.

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 3 January 2012. | 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 delay in the disposal of the unit was due to the market conditions during the period the unit was available to sale. While a number of expressions of interest had been received, they had been withdrawn. Despite the continuous advertising and promotion of the unit, the slow market conditions meant that the settlement on the disposal of the unit had not occurred within the two year period from the date the deceased had passed away. As a result of these delays, the sale of the unit could not be completed within the two year period after the deceased had passed away. After reviewing the facts of this situation, the Commissioner accepts that it is appropriate to grant the extension that you have requested.