Private ruling: Capital gains tax - deceased estate - the Commissioner's discretion
Date of advice: 30 September 2015
Published: November 2015
Ruling period: Income year ending 30 June 2016.
Date scheme commenced: 1 July 2015.

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 to dispose of the Property until settlement of its sale? | A1: Yes.

Relevant facts and circumstances: The deceased purchased a property (the Property) which was their main residence until they passed away after 20 September 1985. You were appointed the Executor and Trustee (the Trustee) of the deceased's estate. The deceased bequeathed the Property to a number of beneficiaries (the deceased's relatives) which included a parent of the deceased and the deceased's siblings. The deceased had been a very heavy smoker and the interior of the Property was affected by the smoke throughout the whole of the building resulting in the Property needing some cleaning to the walls, ceilings and floors. The Property had to be cleared of all of the deceased's furniture, including the bedding in which they had been found. The deceased's siblings, with their parent's assistance, had set about cleaning the Property with the view sell the Property shortly after the grant of Probate. Probate was granted around two months after the deceased had passed away. The kitchen and bathroom in the Property were very run down and it was agreed between the beneficiaries that these were to be either renovated or replaced in order to bring the Property to a reasonable state for sale. The deceased's siblings took it upon themselves to do the work, although one sibling was fully employed and the other sibling was a casual worker. They thought that they would be able to complete the work within a few months at their own expense. You agreed with this course of action because it would be to the benefit of the beneficiaries if the Property was properly set up for a sale, and the costs of same be reduced. Around X months after the deceased has passed away, the deceased's parent had an accident which required one of the deceased's siblings to take compassionate leave from their work for a number of months to care for their parent. The deceased's other sibling could not get a lot of time off work due to their employment. As a result, the work being undertaken on the Property was delayed. The work being undertaken on the Property included the stripping of the carpet in the Property. During this process it was discovered that the concrete slab had concrete spalling due to the original magnesite floor topping used on top of the concrete slab of the Property. The concrete spalling was reported to the body corporate who only resolved to carry out the repairs to the concrete slab of the Property around XX months after the deceased passed away. The block in which the Property is located had various other problems, such as removing and replacing shower bases in a number of properties, including the Property. The contractor had not completed the work until about YY months after the deceased had passed away, at which point the deceased's siblings had recommenced their activities in relation to the repairs to the kitchen, and the cupboards, sink and tiles in the bathroom, and to generally bring the property "up to scratch". As a result of the renovation works and the concrete and tile dust, the Property needed cleaning again. As soon as you were notified that the Property was ready for presentation for sale, it was placed on the market almost two years after the deceased had passed away. It was agreed that the Property would be put up for auction following advice provided from the real estate agent. The Property was sold with settlement occurring around 25 months after the deceased had passed away.

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

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 until settlement of its sale. | 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 this case, the beneficiaries were progressing toward completing the sale of the property well within the two year deadline. However, delays were experienced due to the events disclosed in your private ruling request. As a result of these delays, the sale of the property could not be completed until just after the two year deadline expired. After reviewing the facts of this situation, the Commissioner accepts that it is appropriate to grant the short extension that you have requested.