Private ruling: Capital gains tax – deceased estate – Commissioner’s discretion
Date of advice: 25 October 2017
Published: March 2018
Ruling period: Year ended 30 June 201C.
Date scheme commenced: 1 July 201B.

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: X was the spouse of Y. X built a dwelling on the land. X resided in the residence until passing away in 19AA. X also owned the adjoining land, which was vacant. X’s estate was left to Y and the child of Y and X as joint tenants (child Z). X’s will contained a direction that the interest belonging to child Z remain on trust until the child attains certain age. Y was executor of X’s estate. Title to both lots were transferred into Y name as personal representative of X’s estate. Y did not complete the administration of X’s estate. Another child of Y purchased the lot containing the vacant land. Y obtained consent from child Z for the sale of the land and transferred $XX,000 to child Z as part of child’s Z entitlement under X’s will. Y retained the lot containing the house and constructed a new dwelling on land (dwelling). Y passed away in 201D (the deceased). The dwelling was the deceased’s main residence. The deceased died intestate. One of the deceased’s children sought legal advice on the administration of the deceased’s estate in 201D. Child Z challenged the ownership of land on which the deceased’s dwelling was built and correspondence ensued between solicitors representing child Z and the deceased’s estate in 201D. To ascertain if the deceased had a will and the location of such a will, extensive searches were undertaken, including advertising before lodging an application for letters of administration. Letters of administration in relation to the deceased’s estate was granted in 201D. The deceased’s child A was appointed as administrator of the deceased’s estate. Settlement negotiations with the child Z and solicitor representing the administrator of the deceased’s estate continued unsuccessfully throughout late 201D to 201C. Solicitors representing the administrator of the deceased’s estate, served notice on child Z, stating that the administrator would be making application to the court to be appointed administrator of X’s estate. The administrator of the deceased’s estate lodged an application to become administrator of X’s estate. Letters of administration in respect to X’s’ estate was granted in 201B. A valuation of the deceased’s dwelling was undertaken in shortly after the letter of administration was granted. The contract for sale was entered into shortly after the valuation was obtained, with settlement of the sale of the contract occurring in 201B. The dwelling was sold a number of months after the 2 years from Y’s date of death. Legal proceedings commenced in the court following the sale of the dwelling in relation to whether child Z had a legal entitlement to the distribution of all or part of the capital proceeds from the sale of the dwelling. The court made orders in 201C declaring that child Z was entitled as a beneficiary of X’s estate to the distribution child Z had received in 2002 through the sale of the vacant lot.

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 mid 201B. | 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 case, you have provided the following facts; ● The deceased passed away intestate and delays were experienced in trying to locate the deceased’s will, advertise the deceased’s estate, obtain letters of administration and appoint an administrator. ● The deceased had remained the beneficiary of X’s estate. This resulted in the administrator of the deceased’s estate having to make application through the court to be appointed administrator of X’s estate. ● Throughout mid 201D until the commencement of legal proceedings in the Relevant Court, the administrator of the deceased’s estate tried to clarify with child Z, the nature of the distribution made to child Z in 2002 and tried to negotiate a settlement of the sale proceeds with child Z. ● The dwelling was sold a short time after the letters of administration was granted. The Commissioner accepts that it is appropriate to grant the short extension that you have requested.

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