Private ruling: Commissioner's discretion to extend the two year period to dispose of an inherited dwelling
Date of advice: 19 July 2018
Published: September 2018
Ruling period: Year ended 30 June 2019
Date scheme commenced: 1 July 2018

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 DDMMYY? | A1: Yes.

Relevant facts and circumstances: Individual 1 purchased the property after 20 September 1985 (the Dwelling). Individual 1 lived in the Dwelling with their de facto partner, Individual 2. Sometime after the Dwelling was purchased Individual 1 passed away. Individual 1’s Will was in the possession of their legal guardian (Legal Guardian). The Legal Guardian gave Individual 1’s Will to their solicitor who in turn lodged it with the Supreme Court. Individual 1’s Will did not nominate an Executor for their estate and consequently it was necessary for Letters of Administration to be applied for. As the de facto partner and the primary beneficiary of Individual 1’s Will, Individual 2 was entitled to apply for Letters of Administration of Individual 1’s estate. Individual 2’s solicitor, had difficulty obtaining instruction from Individual 2 due to their age and lack of understanding of the complexities of the situation, this led to a deteriorating relationship between Individual 2 and their solicitor. Individual 2’s solicitor delayed applying for Letters of Administration due to matters surrounding accounts held by Individual 1’s Legal Guardian. The grandchild of Individual 2 became involved in the matter and began to assist Individual 2 with their Letters of Administration application and correspondence with the solicitor. Approximately 12 months after individual 1 passed away individual 2 passed away (the Deceased). The Deceased did not apply for Letters of Administration for Individual 1’s estate before they passed away. Approximately 12 months after the Deceased passed away the deceased solicitor, the nominated executor named under the Deceased’s Will, declined to act as executor of the Deceased’s estate. The grandchild of the Deceased was named sub executor in the Deceased’s Will and consequently decided to apply for Probate of the Deceased’s estate. The grandchild of the Deceased lodged an application for Probate of the Deceased’s estate. The Supreme Court raised a number of requisitions on the application for Probate which made it far more complicated to obtain Probate. The most difficult requisition made by the Supreme Court was to locate the Deceased’s relatives overseas, this involved many months of emails, translators, genealogical searchers and seeking assistance from the civil registry office of the country involved. Approximately two years after the grandchild of the Deceased lodged an application for Probate of the Deceased’s estate the final requisition issued by the Supreme Court was satisfied and probate was granted. It took a number of months to locate and retrieve the original Will of Individual 1’s estate. A short time later the grandchild of the Deceased applied for and was granted Letters of Administration for Individual 1’s estate. The Dwelling was transferred from Individual 1’s estate into the Deceased’s estate. A few months later the Dwelling went to auction and sold. Settlement is arranged to take place three months after the sale of the Dwelling.

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. | 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 the delay in disposing of the dwelling was due to the complexity of the deceased’s estate as follows: ● The initial owner of the dwelling, Individual 1, did not name an executor of their estate in their Will; ● Individual 1’s Will was then lodged to the Supreme Court by their legal guardian; ● The deceased, who lived at the dwelling, was the main beneficiary of Individual 1’s estate and was the de facto partner of Individual 1, passed away before they could apply for Letters of Administration of Individual 1’s estate; ● The deceased’s Will named their lawyer executor of their estate, who after 12 months renounced their role as executor leaving both deceased’s estates administration to the deceased’s grandchild; and ● Once the deceased’s grandchild took over as executor of the deceased’s estate they promptly applied for Probate. The Supreme Court however issued a number of complex requisitions upon application for Probate which took an extensive amount of time to satisfy. ● After Probate was granted for the deceased’s estate the deceased’s grandchild applied for and was granted Letters of administration for Individual 1’s estate; and ● Once the dwelling was transferred from Individual 1’s estate into the deceased’s estate it went to auction and was sold within three months. All of which delayed the completion of the administration of the deceased’s estate’s and the sale of the dwelling. The Commissioner accepts that it is appropriate to grant the extension that you have requested until DDMMYY.