Private ruling: Capital Gains Tax - deceased estate
Published: September 2017
Ruling period: Year ended 30 June 2016.
Date scheme commenced: 1 July 2015.

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: Yes.

Relevant facts and circumstances: The deceased passed away in 20XX. The deceased acquired the property after 20 September 1985. From the date of acquisition of the property until 20XX, the deceased lived in the property and it was his/her main residence. The deceased moved into a nursing home in 20XX however the property was left vacant and still treated as his/her main residence until his/her death. The deceased made a number of wills, including signed will instruction sheets and a handwritten document signed by him/her without any witnesses. Due to the various documents recording the deceased's testamentary intentions, the executor delayed the administration of the estate. There was contention regarding which document was taken to be the deceased's last will. Further delay was encountered as the potential familial beneficiaries to the deceased's estate all lived overseas. The beneficiary was notified of his/her potential interest in the estate in 20XX. The beneficiary instructed a lawyer overseas in 20XX and the overseas lawyer engaged an Australian lawyer in 20XX. There were many other beneficiaries to be notified of their potential interest in the estate and the executor requested that the overseas lawyer contact them on the executor's behalf. All of the potential beneficiaries of the estate were notified by 20XX. The beneficiary was advised by the executor that they had applied for a grant of probate and that the beneficiary would be receiving the property from the estate. The transfer of the property to the beneficiary was registered in 20XX. The beneficiary entered into a contract to sell the property. The executor rented out the property during his/her period of executorship.

Relevant legislative provisions: 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 Your ownership interest ends within 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances). You 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 his/her main residence until they vacated it to live in a nursing home. The property was vacant from the date the deceased moved into the nursing home until his/her death. The property was not sold within 2 years of the deceased's death. You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the 2 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 Having considered the circumstances and the factors outlined above, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time until 20XX, being the date of settlement for the sale of the property.