Private ruling: CGT – deceased estate – extension of time
Date of advice: 13 July 2018
Published: September 2018
Ruling period: Year ending 30 June 2018
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 period for the estate to obtain the main residence exemption? | A1: Yes

Relevant facts and circumstances: The deceased passed away early 20XX. A child of the deceased was listed as the sole beneficiary and Executor The first external valuation was obtained in early 20XX A member of the family had a caveat placed on the property on 20XX The property was not rented The grant of probate was received by the Executor in mid 20XX In mid 20XX the first Family Deed of Arrangement was issued The second valuation was obtained in early 20XX In late 20XX the lawyers for the parties agreed that the property could be put up for sale The real estate agent was engaged in late 20XX A buyer was found and the contract for sale signed in late 20XX The Deed was formalised in late 20XX The two year period was reached early 20XX Property finance delayed the settlement to early 20XX

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-195(1)

Reasons for decision: Summary: 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). In this case, the property will be sold outside the two year period outlined in subsection 118-195(1) of the ITAA 1997. Therefore, you will only be able to disregard the capital gain from the sale of the property if the Commissioner grants an extension to the two year time limit. 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 (eg 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. | Detailed Reasoning - Application to your circumstances: In this case, a caveat was placed on the property and the family members were unable to agree on the terms of the Family arrangement. The property was placed on the market for sale and a buyer was found and contract signed prior to the end of the two year period. Delays were caused by the late removal of the caveat by family members other than the Executor and further issues with the property financing. 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 until early 20XX.