Private ruling: Capital gains tax exemption
Date of advice: 10 September 2015
Published: September 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

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: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The deceased passed away during the 200X financial year. The deceased's main residence (the property) was acquired prior to 19 September 1985. The property was constructed in the 19X0's and was in need of substantial structural improvements. It was the deceased's main residence until their death. The property has never been used to produce assessable income. Probate was granted during the 200X financial year to one of the deceased's children. There was a delay in the administration of the Estate due to: • The will was drafted during the late 19X0's • The solicitor who drafted the Will had closed their office • The Will was retained for safe keeping by Legal Firm #1 • Legal Firm #1 was then engaged to attend to the administration of the deceased's estate • There were several staff changes however there was one solicitor who oversaw the deceased estate • Transfer documents were lodged with the Land Titles Office with a view to transferring the property to the estate • One of the deceased's children (child A) had contributed a sum towards the purchase of the property • The deceased and their spouse had at all times expressed their wish that child A must continue to live in the property during child A's lifetime • The beneficiaries met and decided that the property should not be sold and that child A should continue to reside in the property • Child A had paid all rates, outgoings and related expenses for the property • Legal Firm #1 was instructed to attend to the administration of the estate and to deal with the property which could not be sold or transferred from the estate by agreement of the beneficiaries • The executor made several enquiries at the offices of Legal Firm #1 regarding the outcome of the matter with the deceased estate • The staff at Legal Firm #1 were unable to assist and when enquiries were made as to the whereabouts of the solicitor in charge, the executor was told that the solicitors whereabouts were unknown • The executor visited the office of Legal Firm #1 in early 20XX and established that the Legal Services Commissioner had closed down the office of Legal Firm #1. The solicitor in charge was investigated and received a term of imprisonment • The executor received a letter from an administrator, Legal Firm #2 who was appointed to take over the files of Legal Firm #1. The executor signed an authority asking for the file to be transferred to the Estate's current solicitor • The appointment of administrator of Legal Firm #1 came to an end and the file of the deceased estate was still not released to the current solicitor • The State Law Institute then took over the administration. The only document that was then forwarded to the current solicitor was the Certificate of Title relating to the property • The State Law Institute wrote to the current solicitor stating that Legal Firm #3 had acquired the client files from Legal Firm #1 • Legal Firm #3 were unable to locate the deceased estate file • During early 20YY, the current solicitor wrote to Public Records requesting a copy of the Grant of Probate and probated Will. • The documents were provided in mid-20ZZ • A Deed of Family Arrangement was prepared in early 20ZZ so that the executor could arrange for sale of the property and the purchase of a new property for child A • The property was sold and settled in mid-20ZZ • A new property was purchased and settled on the same day.

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

Reasons for decision: Summary: The Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit. | Detailed Reasoning - Detailed reasoning: Section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) allows an individual to disregard a capital gain or capital loss made from a Capital Gains Tax event (i.e. sale of the property) that happens in relation to a dwelling where: The ownership of the dwelling passed to you as the beneficiary of a deceased person's estate, The deceased person died after 20 August 1996, The deceased acquired the dwelling prior to 19 September 1985, and The dwelling was the deceased person's main residence just before death. You fit into the above requirements. Therefore, you may be eligible to disregard the capital gains tax if: • you dispose of your interest in the dwelling within two years of the deceased's death, or • the dwelling is your main residence from the date of death until the time your ownership ends. The two year time period to dispose of the property expired during the 200Y financial year. Therefore, you will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period. The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion: • 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 (e.g. 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 reasons outside the beneficiary or trustee's control. In determining whether or not to grant an extension the Commissioner is expected to consider whether and to what extent the dwelling is used to produce assessable income and how long the trustee or beneficiary held it. In this case, the estate was quite complex. This was due to a number of reasons including: • the Will was completed during the late 19X0's and the solicitor who drafted the Will had ceased business • the Estate's initial law firm, Legal Firm #1 being closed by the Legal Services Commissioner • The administrator of Legal Firm #1 did not transfer the Estate file, as requested by the executor • The State Law Institute then took over the administration • The State Law Institute wrote to the current solicitor stating that Legal Firm #3 had acquired the client files from Legal Firm #1 • The current law firm received the requested file in mid-20ZZ • A deed of family arrangement was entered into to fulfil the deceased's wishes. The property has never been used to produce assessable income. Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.