Private ruling: Commissioner’s discretion to extend the two year time limit to dispose of a dwelling
Date of advice: 14 August 2018
Published: October 2018
Ruling period: Year ended 30 June 2018 | Year ended 30 June 2019
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? | A1: Yes.

Relevant facts and circumstances: The deceased acquired a dwelling before 20 September 1985. The deceased passed away a number of years later. The dwelling was the deceased’s main residence. The deceased named you and your sibling as executors to the estate; however your sibling has recused themselves. You are now sole executor to the estate. The dwelling was placed into your name as executor of the estate. After the deceased passed away, you have worked with your other sibling and your respective partners to prepare the dwelling for sale. A neighbour had expressed their interest in purchasing the dwelling to the deceased, prior to their death. The deceased had advised them they could deal with you in the event of their death. As a consequence of that conversation and their ongoing care and support the neighbours had provided the deceased, you agreed to the sale. There were some delays from your neighbours, during which time you were approached by a stranger who wished to purchase the dwelling should the sale to the neighbour not proceed. You were also approached by a work colleague, who also expressed their interest if the original sale did not proceed. During this time you and your partner experienced some challenges with employment and both changed jobs. Your sibling and their partner each experienced significant illness requiring hospitalisation. You are also the primary carer for your elderly parent who has dementia and who up until recently, lived in their own home with daily support from yourself. Your parent has now moved into a dementia specific aged care facility, requiring you to empty their home and deal with other related issues surrounding the move. After months with no update from the neighbours about the sale, you met with them and they confirmed that they couldn’t proceed. You then contacted the stranger who had previously approached you and now due to family circumstances, he was not able to proceed with the purchase. You then spoke with your work colleague who was still interested in purchasing the dwelling and after an inspection, a price for sale was agreed upon. You contacted your solicitors and a contract of sale was drawn up and forwarded to the purchasers and their solicitors. Over the period of a few months, your solicitor discovered that a caveat had been placed upon the dwelling by the deceased’s ex-spouse at the time of their separation before 1985. They divorced some years later, and the spouse passed away before the deceased. The caveat was not noted on the copy of the title that you received. You instructed your solicitor to have the caveat removed. You made contact with the law firm who were involved in placing the caveat on the title, however, the death of the deceased’s ex-wife and lack of contact details for any of their surviving family members meant they could not assist in having it removed. The purchasers continued their significant research into the requirements for dwelling entitlement before submitting a substantial portfolio to council, along with a letter that you wrote outlining your family connection to the dwelling since its acquisition date. They were advised that they would be notified of the outcome within a week. You sought to have the caveat declared lapsed and hence removed. You received confirmation of the removal of the caveat. Around the same time, following further research and submissions, the purchasers were advised via email that the dwelling was legal, with written confirmation from Council being received a couple of day later. Contracts were exchanged and settlement will occur two years and two months after the deceased date of 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 | 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? 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. We have taken the facts of your situation into consideration when determining whether the Commissioner’s discretion would be exercised extend the two year period and allow you to disregard any capital gain or capital loss made on the disposal of the dwelling under subsection 118-195(1) of the ITAA 1997. We accept that the reason for the delay in the disposal of the deceased’s dwelling was due above mentioned issues arising during the two year period after the deceased had passed away. Using the guidelines provided above and having considered the relevant facts of your situation, the Commissioner will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit. The Commissioner accepts that it is appropriate to grant the short extension that you have requested.