Private ruling: Capital gains tax - deceased estate - Commissioner's discretion
Published: April 2014
Ruling period: Year ending 30 June 2014.
Date scheme commenced: 1 July 2013

Ruling: Question and answer | Will the Commissioner exercise 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 the date of settlement? | Yes.

Relevant facts and circumstances: The deceased passed away in 2011. The property was the main residence of the deceased prior to the date of death, and was not used to gain or produce assessable income from the date of death until the settlement date. A relative of the deceased challenged the terms of the will and brought an application to the provisions of the Testator's Family Maintenance Act . The claim was resolved by way of court orders made in 2013. The property could not be sold prior to the court orders being made. It took some time for the property to be cleaned in order to be brought to a presentable state ready for sale. A local real estate agent was then asked to provide a market appraisal on the property. The property was sold and settlement occurred in 2013.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-130. | Income Tax Assessment Act 1997 Section 118-195.

Reasons for decision: Summary: When a person inherits a deceased person's dwelling, they may be exempt or partially exempt when a capital gains tax (CGT) event happens to it (for example, they sell it). Where the dwelling is sold within two years of the deceased's death, the trustee or beneficiary can disregard the capital gain or capital loss resulting from the sale. A trustee or beneficiary of a deceased estate may apply to the Commissioner to grant an extension of the two year time period, where the CGT event happens in the 2008-09 income year or later income years. Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example: • 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 (for example, 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 circumstances outside the beneficiary or trustee's control. In exercising the discretion the Commissioner will also take into account whether and to what extent the dwelling is used to produce assessable income and for how long the trustee or beneficiary held the ownership interest in the dwelling. In your case, the delay occurred due to the will being challenged by the relative of the deceased and the property not being available for sale until this had been finalised, and this was after the two year period had expired. After the court proceedings had concluded, the property was sold in a reasonable time frame. For these reasons, the Commissioner will exercise his discretion to allow an extension to the two year time period, until the date of settlement.