Private ruling: Capital gains tax - deceased estate - Commissioner's discretion to extend the two year period - main residence exemption
Date of advice: 31 March 2017
Published: August 2017
Ruling period: Year ended 30 June 2017.
Date scheme commenced: 1 July 2016.

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: No.


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 subsection 118-145 | Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1997 subsection 118-195(1)

Reasons for decision: Summary: The Commissioner has decided not to exercise his power to extend the two year period available to the deceased estate to dispose of the inherited property for the purposes of section 118-195 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: In certain circumstances, section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the trustee of a deceased estate may disregard an assessable gain or loss made from the disposal of a property that passed to them in their capacity as trustee of a deceased estate if: ● the property was acquired by the deceased before 20 September 1985, or ● the property was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income, and ● Your ownership interest ends within two years of the deceased's death. The Commissioner has discretion to extend the two year time period where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death. This discretion may be exercised in situations such as where: 1) the ownership of a dwelling or a will is challenged; 2) the complexity of a deceased estate delays the completion of administration of the estate; 3) 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 (for example, the taxpayer or a family member has a severe illness or injury); or 4) Settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control. These examples are not exhaustive, but provide guidance on what factors the Commissioner would consider reasonable to exercise his discretion to extend the two year period to dispose of an inherited property. In exercising the discretion the Commissioner will also take into account whether and to what extent the property is used to produce assessable income and for how long the trustee or beneficiary held the ownership interest in the property. Whether the Commissioner will exercise his discretion under subsection 118-195(1) of the ITAA 1997 will depend on the facts of each case. | Detailed Reasoning - Application to your circumstances: In all cases the Commissioner expects the executor of a deceased estate to make reasonable enquiries about matters that affect the administration of the estate. In this case it is acknowledged that due to the poor health of the deceased the property was not being well maintained and in fact once the deceased was residing in a nursing home the property was not being maintained at all until after probate was obtained. While we appreciate you wanted to bring the property to a reasonable condition for sale, the fact that you were away for extended periods of time with your own employment and were doing the repairs between responsibilities does not change the fact that you could have engaged someone else to complete the repairs. As executor you should have been aware that there were conditions that had to be met if the sale of the property was to be exempt from the capital gains provisions. As executor you should have been aware that the CGT provisions might apply if the sale of the property was delayed beyond two years from the date the deceased passed away Furthermore there has been no challenge to the will, the estate was not complex, there were no unforseen or serious personal circumstances that prevented the sale, and the delay in selling the property is not due to circumstances beyond the your control. Settlement on the disposal of the dwelling did not occur until a number of years after the deceased passed away and delay in the disposal of the dwelling was a result of the actions and choices made by you as executor. 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. Based on the information and documentation provided with this private ruling it has been determined that the property could have been sold within the two year period. The Commissioner's discretion will not be exercised to extend the two year period as it is viewed that the facts of this situation are not of a nature that would be acceptable for the exercising of the Commissioner's discretion. As the Commissioner has not exercised his discretion to extend the two year period to dispose of the deceased's property, any capital gain made on the disposal of the deceased's property cannot be disregarded.

Relevant facts: The deceased passed away in early 20XX. | The deceased acquired the dwelling prior to 20 September 1985. | The deceased was admitted to a nursing home several years before their passing. | The dwelling was not being used for income producing activities and no income has been received from the dwelling after the passing of the deceased. | The dwelling was the deceased main residence at the time of their death. | The will named Child A, as executor. | Due to the deceased poor physical condition the dwelling was not maintained prior to them moving into the nursing home. | Maintenance was undertaken once probate was granted. | Probate was granted in nearly one year after the passing if the deceased. | When probate was granted the dwelling had cracked walls, damaged ceilings, floor coverings, roof and guttering, broken windows and overgrown garden. | The dwelling was infested by a variety of insects and vermin. | Repairs to the dwelling commenced after probate and were mostly conducted by the executor to reduce costs. | The executor was away for extended periods of time with work and was completing the repairs between business responsibilities. | The repairs were completed several years after probate. | The dwelling was placed on the market when the repairs where completed. | Settlement occurred over two years after the deceased had passed away.