Private ruling: Capital gains tax - deceased estate - Commissioner's discretion - two year period
Date of advice: 8 June 2016
Published: July 2016
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 to dispose of the inherited property? | A1: No.

Relevant facts and circumstances: The deceased acquired the residential the property prior to 20 September 1985 and was their main residence for the whole period of ownership. The deceased passed away in 20XX. You were the sole beneficiary of the deceased's estates and the property was immediately transferred into your name. Your child lived in the property for about four years. In order to assist your child, you allowed your child to live in the property rent free for one year, and then began to charge minimal rent. By the time you decided to sell the property, the price had significantly increased due to a zoning changing made by the local council. The property sold and settled around four years after the deceased's death.

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: Commissioner's discretion to extend the two year period to dispose of an inherited property | 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 beneficiaries 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. It is clear that the Commissioner's discretion is meant to be limited to situations where the owner is effectively prevented from selling the property. The intention of the two year period is to allow the orderly and timely sale of deceased's property. In your case, you allowed your child to reside in the property for a period of about four years. Within that time, the property significantly increased in value and you have made a capital gain when you have sold the property with settlement occurring more than four years after the title of the property was transferred into your name. The delay in the disposal of the property was contributed to by the actions, choices, and inactivity of you, the beneficiary of the deceased's estate. Activities could have been undertaken to ensure that the property had been disposed of within the two year period after the deceased had passed away. While we acknowledge and appreciate the circumstances in relation to your child being allowed to reside in the property in order to help out, and that the rezoning by the council increased the value of the property, it was ultimately your decision, as beneficiary, to not sell the property within the two year period after the deceased passed away. Consequently, the Commissioner considers that there were no legal or physical impediments that prevented the disposal of the property within the two year period from the date the deceased passed away. Having considered the relevant facts, the Commissioner will not apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.