Private ruling: CGT – deceased estate – Commissioner’s discretion to extend the two year period
Date of advice: 8 June 2017
Published: October 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? | A1: Yes.

Relevant facts and circumstances: The deceased and their spouse (the spouse) purchased the dwelling prior to 20 September 1985. The deceased and the spouse had two children, sibling D and sibling H. In 1994 sibling D, their partner (partner of sibling D) and their Child (child of sibling D) moved into the dwelling to help care for sibling D’s parents and subsequently stayed in the dwelling until it was sold. Several years after sibling D moved into the dwelling the deceased, suffering from dementia, commenced living in a nursing home. A couple of years after the deceased commenced living in a nursing home the spouse passed away. A number of years later the deceased passed away. For the purposes of this ruling, you as the executor of the estate have made the absence choice in relation to treating the dwelling as the deceased main residence from the date the deceased commenced living in a nursing home until the date of the deceased death. The dwelling was not used for income producing activities and no income has been received from the dwelling after the passing of the deceased. There was no will left by the deceased subsequently the property has been left under the laws of intestacy. Shortly after the deceased passed away, the partner of sibling D informed sibling H that the deceased had left the dwelling to sibling D as they (sibling D’s family) had moved into the dwelling and cared for the deceased and spouse. Sibling H did not dispute the claim made by the partner of sibling D at the time. An investment project of sibling H and spouse (ex-spouse) failed which ultimately led to sibling H losing their house and as a result of the financial stresses and hardship sibling H’s marriage failed. Sibling H rented out a small unit. Although sibling H is separated from their spouse, sibling H provides the ex-spouse and their child with a room each in sibling H’s rental unit. In addition to this sibling H pays for all expenses and outgoings of the unit and the household as the ex-spouse is incapacitated. Nearly a decade after the death of the deceased, sibling H became aware that they were needed by sibling D to affect the transfer of the deceased’s home to sibling D. Sibling H obtained a copy of the spouses will. The spouse left their share of the dwelling to the deceased in their will. A few months later, sibling H’s solicitor wrote to sibling D requesting them to join in an Application for Letters of Administration in the deceased’s estate. Sibling D made no response. Just over twelve months later, sibling D commenced legal proceedings in the Supreme Court seeking orders under the Succession Act (Family Provisions). At a similar time, sibling H obtained the grant of Letters of Administration. Twelve months later, judgement was handed down in sibling H favour. The Estate was to be distributed to sibling D and sibling H equally. The property was transferred to the Administrator’s name and sold. Settlement occurred approximately 18 months after letters of administration was granted to sibling H.

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 to the two year period? | Detailed Reasoning - Detailed reasoning: In certain circumstances, section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the trustee of a deceased estate may disregard an assessable gain or loss made from the disposal of a property that passed to them in their capacity as trustee of a deceased estate 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 the two year time period where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death. This discretion may be exercised in situations such as where: 1) the ownership of a dwelling or a will is challenged; 2) the complexity of a deceased estate delays the completion of administration of the estate; 3) 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 4) Settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control. These examples are not exhaustive, but provide guidance on what factors the Commissioner would consider reasonable to exercise his discretion to extend the two year period to dispose of an inherited property. In exercising the discretion the Commissioner will also take into account whether and to what extent the property is used to produce assessable income and for how long the trustee or beneficiary held the ownership interest in the property. Whether the Commissioner will exercise his discretion under subsection 118-195(1) of the ITAA 1997 will depend on the facts of each case. In your case, the delay in disposing of the dwelling was due to you believing that the property was left to sibling D and his family. After the deceased passed away, the partner of sibling D informed you that the deceased had left the property to sibling D as they (sibling D’s family) had moved into the dwelling and cared for the deceased and the deceased spouse. You took this at face value and did not dispute the claim as sibling D and his family had in fact cared the deceased and the deceased spouse and lived in the property for the past 12 years. After the deceased spouse passed away you fell on hard times with your property development investment failing resulting in you losing your family home and your marriage. During this time of hardship for you, sibling D continued to live rent free and obtain all the benefits from the deceased’s estates assets. During 2014 you became aware that you were needed by sibling D to transfer the property into sibling D’s name, from this you sort legal assistance which ultimately led to Supreme Court proceedings and the property having to be divided equally between you and sibling D. Having considered the relevant facts, the Commissioner is able to apply his discretion under Section 118-195 of the ITAA 1997 and allow a reasonable extension to the time limit.