Private ruling: Capital gains tax - deceased estate - Commissioner's discretion
Date of advice: 22 February 2017
Published: August 2017
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. This ruling applies for the following periods: Year ended 30 June 2016.

Relevant facts and circumstances: A passed away in 20XX. A acquired the property before 20 September 1985. From 20XX, A and B held the property as tenants in common in equal shares. In A's will, B received the whole of the real and personal estate. Probate of the Will of A was granted in 20XX to a trustee on behalf of B. C made a Testator's Family Maintenance claim (“TFM claim”) against A's estate. The TFM claim was settled in 20XX by the Relevant Court. The terms of settlement granted the B a life interest in A's half share interest in the property- the life interest being payable to C after the death of B and upon finalisation of A's estate. B died in 20XX. A and B used the property as their main residence from the date of acquisition to the date of their respective deaths and the property was not used to generate assessable income. They did not have ownership interest in any other property. After B's death, the property was contracted to be sold by the trustee. Settlement of the property took place in 20XX.

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 A prior to 20 September 1985 and was their main residence until they passed away in 20XX. The property was not sold within 2 years of the A'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 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.