Private ruling: Capital Gains Tax (CGT) - deceased estate - 2 year discretion
Date of advice: 17 September 2018
Published: November 2018
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the dwelling on the property and allow an extension of time until 20XX? | A1: No

Relevant facts and circumstances: Your parent (the deceased) acquired a residential property before 20 September 1985. The deceased passed away in 20XX. The property was always the main residence of the deceased and has never been used to produce income. The property was held by you and your sibling as tenants in common from the date of death until its eventual sale early in 20XX. The property was therefore held by you for over two years. You and your sibling are the only executors /Trustees and beneficiaries of the estate. The Trustees made a capital gain on the sale of the property. The property is less than 2 hectares in size. The delay in selling the property was due to the following reasons: ● Following the initial period when the deceased passed away, you did not want to deal with matters concerning the estate as you and your sibling were mourning for your loss. ● Following the period of mourning, getting your sibling to help with matters concerning the estate was difficult. ● You were required to travel in order to attend to the estate. ● The deceased’s solicitor failed to give you any advice about the CGT implications for the sale of the property, and you thought you had more time in which you could sell the property. ● For the reasons stated above, you and your sibling took a while to pack up the deceased’s belongings and you were in the process of preparing the house for sale when in late 20XX you suffered a serious medical condition which left you physically incapable of any exertion for a lengthy period. ● At that point your sibling would not prepare the house for sale without you. ● You finished preparing the house for sale at the end 20XX and it was subsequently sold in early 20XX. Certain documents were provided to support these statements. They are to be read with and form part of the description of the arrangement for the purpose of this ruling. ● A copy of the will. ● A copy of probate granted in 20XX.

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

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 states that if you are an individual who owns a dwelling in a capacity as trustee of a deceased 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 on or after 20 September 1985 and the property 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; or the property was acquired by the deceased before 20 September 1985; and ● your ownership interest ends within 2 years of the deceased’s death (the Commissioner has discretion to extend this period in certain circumstances). 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 relevance and weight to be given to each of the factors described above will depend upon the circumstances of each particular case. Also, examples of reasons considered not to be acceptable for exercising the Commissioner’s discretion may include: ● waiting for the property market to pick up before selling the house, ● delay due to refurbishment of the house to improve the sale price, ● inconvenience on the part of the trustee or beneficiary to organise the sale of the house, or ● unexplained periods of inactivity by the executor in attending to the administration of the estate. It is considered that the trustee has a choice in the situations described above. Accordingly, the Commissioner would not exercise the discretion under those circumstances. In your case, in late 20XX you suffered a serious medical condition in the course of preparing the inherited property for sale, and following this you were physically incapable of any exertion for a lengthy period. Also, following this your sibling, who is the other trustee of the estate, was unwilling to assist in preparing the property for sale without you. Whilst we acknowledge the difficulties you would have faced resulting from the serious medical condition, and the subsequent unwillingness of your sibling to assist in preparing the house for sale without your involvement, we note that there was a lengthy period of time between the deceased’s date of death and the date you suffered the serious medical condition. You have advised that during this time, you and your sibling went through an initial period of mourning where neither of you wanted to deal with matters concerning the estate. Following this you advise that getting your sibling to help was difficult, and the deceased’s solicitor failed to give you any advice about the CGT implications for the sale of your property. Due to this you thought you had more time to sell the property. Whilst we acknowledge these circumstances, in particular the period when you and your sibling were grieving for your loss, we do not consider that those circumstances would have delayed you in preparing the property for sale for such a long period of time. Thus, we consider that you had the opportunity to take appropriate action to prepare the property for sale during the period between the deceased’s date of death and when you suffered the medical condition, and had you done so the property may have been sold prior to you suffering the medical condition. We do not consider that the serious medical condition you suffered had any direct impact on the ability of the executors to sell the property within the two year period, given that you also had the extended period of time to prepare the house for sale prior to you experiencing the medical condition and also, the other executor could have prepared the house for sale while you were recovering. Having considered the relevant circumstances, the Commissioner will not exercise his discretion and extend the 2 year time limit, as it is viewed that the delay in the administration of the deceased estate was contributed mainly by choices made by the trustees of the estate, including their lack of awareness about the CGT implications for the sale of the property, the lack of action taken during the lengthy period leading up to when you suffered the medical condition, and the choice of the other trustee not to prepare the property for sale while you were recovering. Due to this, you cannot disregard the capital gain from the disposal of the deceased’s main residence under subsection 118-195(1) of the ITAA 1997.