Private ruling: Deceased estate - Commissioners discretion
Date of advice: 24 August 2016
Published: September 2016
Ruling period: Year ending 31June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the Commissioner, exercise 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 facts and circumstances: The property was the main residence of the deceased at the date of death. The property was purchased by the deceased after 20 September 1985. The beneficiaries of the estate were understandably emotional upon the death and were not rushing to make decisions about the estate assets. After the deceased date of death, the property was occupied by the deceased's relation. No rent was paid. An agreement was entered into between the beneficiaries that one would buy the other's share in the property, and a valuation was obtained. One beneficiary sold their property and, unforeseen, moved interstate. At this point, it was agreed to instead sell the property. The property was made ready for sale more than two years after the deceased's death. It was put up for auction, but did not sell. The property was eventually sold. In respect of this property, there was no life interest or life tenancy arrangement under the will. The property sale settled more than two years after the deceased's death.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-130(3). | Income Tax Assessment Act 1997 section 118-195.

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 states that if you own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an estate), then you are exempt from tax on any capital gain made on the disposal of the property 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 • the ownership interest ends within two years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances). The beneficiaries have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed). In this case, the property was purchased by the deceased after 20 September 1985 and was their main residence until they passed away. The property was not sold within two years of the deceased's date of death. You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the two year time period. The Commissioner can exercise his discretion in situations such as where: • 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 (for example, 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 circumstances outside the beneficiary or trustee's control In this case, the beneficiaries inherited an ownership interest in the property. One beneficiary intended to purchase the other's share of the property; however this did not go ahead. The property was not placed on the market for sale until after two years had passed. In this case, 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 beneficiary or trustee's control. While we appreciate the circumstances, this situation is of a different nature to the situations in which the Commissioner can exercise his discretion. Having considered the relevant circumstances, the Commissioner will not exercise his discretion and extend the two year time limit.