Private ruling: Capital gains tax – deceased estate – Commissioner’s discretion to extend the two year period – main residence exemption.
Date of advice: 1 February 2018
Published: June 2018
Ruling period: Year ended 30 June 2018.
Date scheme commenced: 1 July 2017.

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: The deceased acquired a dwelling (the dwelling). The dwelling was the deceased’s main residence. The deceased’s child was their carer and resided in the dwelling with the deceased for a period of time prior to their death. The deceased passed away. You and your sibling (who was the deceased child and carer) are the beneficiaries of the deceased’s estate. Probate was granted. The dwelling was transferred into the names of you and your sibling. You and your sibling intended to sell the dwelling and divide the sale proceeds equally between you. Your sibling was battling health issues, being diagnosed with a terminal illness before the deceased passed away and has been receiving treatment. Your sibling went into remission however suffered ongoing health issues as a result of the treatment and has been under medical supervision as a result. You allowed your sibling to continue to live in the dwelling rent free as a result of their medical condition. You did not pressure your sibling to sell the dwelling due to their emotional and physical condition. Your sibling is now in remission and has agreed to proceed with the sale of the dwelling. The dwelling went to auction two and a half years after the deceased’s date of death. Contracts have been exchanged and settlement will occur two years and nine months after the deceased’s death.

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 settlement. | 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 your submission, you state that the delay in disposing of the dwelling was due to the mental and physical condition of one of the beneficiaries of the deceased estate (your sibling). You did not want to pressure your sibling into selling, as they had been diagnosed with a terminal illness before the deceased’s death, requiring treatment. Your sibling then suffered from ongoing health issues as a result, which together with your sibling’s grief, made it difficult to proceed with the sale. Once your sibling’s health improved it was agreed to proceed with the sale, with settlement to occur two years and nine months after the date of the deceased’s death. We have taken the facts of your situation into consideration when determining whether the Commissioner’s discretion would be exercised to extend the two year period and allow you to disregard any capital gain or capital loss made on the disposal of the dwelling under subsection 118-195(1) of the ITAA 1997. We accept that the reason for the delay in the disposal of the deceased’s dwelling was due above mentioned issues arising during the two year period after the deceased had passed away. Using the guidelines provided above and having considered the relevant facts of your situation, 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. The Commissioner accepts that it is appropriate to grant the short extension that you have requested.