Private ruling: Capital gains tax – deceased estate – Commissioner’s discretion to extend the two year period – Main residence exemption
Date of advice: 7 September 2017
Published: January 2018
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 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 will of the deceased being challenged. 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. | Detailed Reasoning - Note:: Land adjacent to a dwelling may also qualify for the main residence exemption if it and the dwelling are sold together and both of the following apply: ● during the period you owned it, you used the land mainly for private and domestic purposes in association with the dwelling, and ● the total area of the adjacent land and the land on which the dwelling stands is not more than two hectares (4.94 acres). If the adjacent land is used for private purposes and is greater than two hectares, you can choose which two hectares are exempt. The remainder is subject to CGT. If any part of the land around a dwelling is used to produce income, it is not exempt, even if the total land area is less than two hectares.

Relevant facts: The deceased acquired a dwelling and surrounding land greater than 2 hectares. (the dwelling) | The deceased passed away in 2013. (The deceased) | The dwelling was the deceased’s main residence. | The deceased left a will, appointing (A) as sole executor. | ‘A’ renounced all right to probate. | The beneficiaries named in the will did not make an application for letters of administration. | Legal proceedings were commenced in 2014 by (‘B’) and (‘C’), in the relevant Court. | The legal proceedings were resolved by orders given in 2015. | One of the orders of the Court was that letters of administration of the deceased’s estate be granted to ‘B’. | The Court issued a grant of letters of administration to ‘B’ in 2016. | The deceased’s dwelling was transmitted to ‘B’ as administrator after a period of time in 2016. | The dwelling was occupied by ‘B’ as their main residence from the date of death of the deceased until settlement. | The dwelling was prepared for sale and a contract was exchanged in 2016. | Settlement occurred in 2017.