Private ruling: Capital gains tax – deceased estate – Commissioner’s discretion to extend the two year period – main residence exemption
Date of advice: 10 February 2017
Published: March 2017
Ruling period: Year ended 30 June 2017.
Date scheme commenced: 1 July 2016.

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 until settlement? | A1: Yes.

Relevant facts and circumstances: Deceased A acquired a dwelling (the dwelling) Deceased A passed away in 20XX. (Deceased A) The dwelling was the deceased’s main residence. The dwelling passed to the deceased’s spouse, (Deceased B) under the will of the deceased. The dwelling was occupied by Deceased B as their main residence. Deceased B passed away in 20YY. Deceased B is survived by their two children (‘C’) and (‘D’) ‘C’ and ‘D’ are the main beneficiaries of both estates. Legal proceedings were commenced in relation to the estate of Deceased A. The dwelling was unable to be sold during this period as a grant of probate had not been issued. The Court issued letters of administration with the will annexed to an administrator in 20ZZ in relation to the estate of Deceased B. A court appointed administrator was appointed upon the legal proceedings being resolved. At the same time as this a formal grant of letters of administration with the will annexed were issued in 20YY in relation to the estate of deceased A. ‘C’ and ‘D’ agreed that the dwelling was to be sold and instructed the administrator to list the dwelling with a local real estate agent. The administrator was required to be registered on the title to the property for the dwelling to be sold and this occurred a short time later. The dwelling was slow to sell and a decision was made to list the dwelling for sale by auction, however a private purchaser made an offer and contracts were subsequently exchanged in 20YY. Settlement occurred a short time later. The legal proceedings delayed the sale of the deceased’s main residence and the sale was only possible once the administrator was appointed.

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: 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 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, the delay in disposing of the dwelling was due to the complexity of administering the estate. This delay prevented you from disposing of the dwelling within the two year time limit. The Commissioner accepts that it is appropriate to grant the short extension that you have requested.