Private ruling: CGT – deceased estate – Commissioner’s discretion to extend the two year period
Date of advice: 21 June 2018
Published: August 2018
Ruling period: Year ended 30 June 2018.
Date scheme commenced: 1 July 2017.

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 purchased the Dwelling with their spouse prior to 20 September 1985 (the Dwelling). The Deceased’s spouse passed away after 20 September 1985. The Deceased passed away a number of years later. The Dwelling was the Deceased’s main residence at the time of their 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. The formal Will of the Deceased dated many years before the Deceased passed away was held at the Deceased’s Solicitors. The formal Will of the Deceased named the following as executors of the Deceased’s estate: ● Spouse (predeceased); ● the Deceased’s solicitor (or someone from their firm if they renounce); ● Executor 1; and ● Executor 2. It took approximately six months, to locate all the executors and the beneficiaries of the formal Will. Executor 2 was found to be deceased and the Deceased’s solicitor and Executor 1 renounced their role as executors. The Deceased’s solicitor nominated someone from their firm as executor (the executor) for the Deceased’s estate as allowed under a clause in the Deceased’s Will. Just after the Deceased passed away, the Deceased’s sibling located a second informal Will in the Deceased’s Dwelling. Approximately 12 months later two beneficiaries of the informal Will made a claim against the Deceased’s estate. A series of directions hearings and the filing of various pleadings, including cross-claims were brought by the two beneficiaries of the informal Will. At the same time, the Court required that the formal Will be proved in solemn form. Approximately 18 months after the Deceased passed away the matter was set down by the Court for mediation. Upon receiving the grant of probate, payments will be made out of the Deceased’s estate to the beneficiaries of the informal Will by the executor. The day after Court mediation Probate in Solemn form was granted to the executor; however the Court made successive administrative errors in that Probate document which meant that a final corrected form of Grant was not available until a month later. Over the following three months the Dwelling was prepared for sale, this included: ● Garden clearing, removal of trees (or parts) by an arborist, the removal of an asbestos-laden garden shed, removal of the deceased’s vehicle parked on-site, electrical and other maintenance works, washing of the house, major decluttering of the house - furniture, curios and books; and ● Liaising with family members and others regarding these matters and organising skips for the removal of remaining items. The executor was advised by their real estate agent to hold off the auction until after the Christmas and New Year period had passed. Approximately two years after the Deceased passed away the Dwelling was advertised for sale by auction. The Dwelling went to auction one month after it was advertised for sale and was sold. Settlement was originally scheduled six weeks after sale but was delayed due to the purchasers’ inability to complete the transaction on time. Approximately two years and four months after the Deceased passed away settlement occurred on 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 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.