Private ruling: Capital gains tax - deceased estate - Commissioner's decision - two year period
Date of advice: 21 March 2016
Published: May 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: 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? | A1: Yes.

Relevant facts and circumstances: The deceased died in the 20XX-XX financial year. The property was purchased prior to 20 September 1985. The property was the main residence of the deceased when they passed away. Probate was granted in the 20YY-YY financial year. A beneficiary of the estate lived in the property for several years before the deceased's death. The executor and beneficiaries allowed a beneficiary to reside in the property for a period of time after the deceased's date of death. During the two year period the beneficiaries made several attempts to come to a conclusion that was satisfactory for everyone. In the absence of coming to a conclusion that was satisfactory for the beneficiaries, it was decided that the default position be to sell the property within the two-year timeframe. The property was sold and settled in the 20ZZ-ZZ financial year. The property sale settled outside the two year period. The reason for the delay in selling the property was the result of the complexity of the situation with the amount of beneficiaries involved.

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 and | Income Tax Assessment Act 1997 subsection 118-195(1).

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 states that if you own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an estate), then you are exempt from tax on any capital gain made on the disposal of the property if: • the property was acquired by the deceased before 20 September 1985, or • the property was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income, and • your ownership interest ends within 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances). You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed). In this case, the property was purchased by the deceased before 20 September 1985 and was their main residence until they passed away in the 20XX-XX financial year. The property was not sold within 2 years of the deceased's date of death. You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the 2 year time period. The Commissioner can exercise his discretion in situations such as where: • 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 The reason for the delay in selling the property was the result of the complexity of the situation with the amount of beneficiaries involved. As a result, the sale of the property could not be completed until just after the two year deadline expired. Although the Commissioner does not often exercise discretion and extend the two year period where a beneficiary has resided in the property, who did not have a right to occupy the property under the will, the settlement date only fell just outside the two year period. Having considered the circumstances and the factors outlined above, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time until the sale of the property has settled.