Private ruling: Capital Gains Tax and deceased estates
Date of advice: 2 July 2015
Published: July 2015
Ruling period: Year ending 30 June 20ZZ.
Date scheme commenced: 1 July 20YY.

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 executor of the estate is the state Trustee and Guardian. The deceased owned a property which was purchased prior to 1985. It was their main residence until they passed away. Real estate agents were retained to conduct a sales campaign. A successful auction was conducted and a sales contract was entered into by the purchasers and settlement was to occur within 2 years of the date of death. The real estate agency advised that the house had suffered storm damage. As a consequence, the purchaser declined to settle the sale. Several quotes for repair of the damage to the house and garage were obtained. These quotes were used as the basis of a proposed reduction in the sale price to allow settlement to proceed. The purchaser would not enter into negotiations to reduce the sale price. Action was undertaken to repair the house. Approval was received from the insurance company and a new roof for the house and garage has been installed. The purchaser has now lodged a formal claim for further repairs to the house and the Trustee is reviewing the claim. It is now anticipated that settlement will occur by the end of 20YY.

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

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 allows a trustee or beneficiary of a deceased estate to disregard a capital gain or loss from a dwelling 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). 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 your case, settlement of a contract of sale has been unexpectedly delayed. Having considered the particular circumstances of this case, the Commissioner will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.