Private ruling: Capital gains tax - deceased estate - Commissioner's discretion
Date of advice: 20 November 2015
Published: February 2016
Ruling period: Income year ending 30 June 2015.
Date scheme commenced: 1 July 2012.

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 to dispose of the property? | A1: Yes.

Relevant facts and circumstances: Your parents, Parent A and Parent B, purchased the property before 20 September 1985, which was the family's main residence. Parent A passed away after 20 September 1985. Parent B (the deceased) continued to reside in the property for over twenty years until they passed away. One of the deceased's children (your sibling) had resided in the property prior to the date the deceased had passed away and continued to reside in the property after they had passed away. In accordance with the deceased's, an organisation (the Organisation) was appointed as the executor of the deceased's estate. Under the deceased's will, you and your sibling were named as the beneficiaries of the deceased's estate. In the same month that the deceased had passed away, you sent an initial letter and information to the Organisation outlining all known assets of the deceased at the time they passed away. Around a month after the deceased had passed away, you had a meeting with an Organisation case officer during which all documentation belonging to the deceased was provided to assist in completing the administration of the deceased's estate. The Organisation case officer advised that the administration of the deceased's estate could take up to 12 months. Around two months after the deceased passed away, the Organisation received an Order to Administer the Will. As part of the administration of the deceased's estate, the Organisation had valued the property. About three months after the deceased had passed away, you were advised by the Organisation case officer that information was still being sourced to assist in finalising the deceased's estate, some assets, including the property, should be distributed within three months. Additional information was requested by the Organisation, which you provided. Around five months after the deceased passed away, you were advised by the Organisation case officer that some information was still outstanding and the property could not be distributed. The Organisation requested confirmation of how the estate assets should be handled, including the property around seven months after the deceased passed away. You and your sibling signed the confirmation and the signed confirmation was returned to the Organisation requesting the property be transferred to you and your sibling. During the period between eight and 12 months after the deceased passed away, you received correspondence from the Organisation providing updates on the progress of the administration and had made attempts to get the property transferred into you and your sibling's names Around 12 months after the deceased passed away, you received transfer documents from the Organisation. You and your sibling signed the transfer documents and returned them to the Organisation less than a week later. During the period from 13 months to 18 months after the deceased passed away, you received telephone calls and emails from the Organisation about every two weeks with updates. You had continued attempting to have the title of the property transferred into you and your sibling's names. Around the 18 th month after the deceased passed away, you had a conversation with the Organisation case officer during which they advised that the administration of the deceased's estate was still being finalised. You had raised the need to dispose of the property within two years from the date the deceased passed away. The Organisation case officer had dismissed this and had told you that any tax payable would only be a small amount. About the 18 th month after the deceased passed away, the Organisation case officer advised that the deceased's estate would be fully administered by the following month at the latest. The Organisation case officer then advised that both you and your sibling would receive a specified amount of distribution. However, no more distributions would be received from the deceased's estate until administration had been finalised. Around the 19 th month after the deceased passed away, the Organisation case officer had advised that more information was required to finalise tax advice before finalising the administration of the deceased's estate, and that the information was being requested by the case officer from a third party. You had threatened to complain to your local Member of Parliament, but had been advised that the complaint would only be referred to the case officer and would delay the finalisation of the administration of the deceased's estate. During the period from the 19 th to the 21 st month after the deceased passed away, you made numerous attempts to contact the Organisation case officer, with no success. During the 21 st month after the deceased passed away, you were advised that the Organisation case officer handling the administration of the deceased's estate had moved to another role and had spoken to the new case officer assigned to the deceased's estate. The new Organisation case officer provided an update and had advised that the information previously required, as discussed during the conversation in the previous month, had not been requested. You spoke to the case officer's manager who was of the opinion that the property had already been transferred following the signing of the transfer documents which the Organisation had received around nine months earlier. During the 22 nd month after the deceased passed away, the outstanding information from third parties was received by the Organisation and they had advised that the finalising of the deceased estate's administration would continue. You had engaged a real estate agent prior to the finalisation of the deceased's estate, around the time the Organisation had valued the property, in an effort to get the property sold as soon as possible. The title of the property was transferred into you and you sibling's name during the 25 th month after the deceased passed away. Your sibling moved out of the property during the month the title was transferred into you and your sibling's names. The property was not used to produce assessable income after your sibling had moved out of the property. The property was put on the market and in the month after the title was transferred into your name a contract of sale was signed, with the property being sold for an amount greater than the valuation amount provided by the Organisation. Settlement occurred around five months after the sale contract had been signed. You have made the following statements: • The Organisation had valued the property and you and your sibling could either have the Organisation organise the sale of the property with the proceeds to be distributed to you both, or have the title of the property transferred into you and your sibling's names • You and your sibling believed that Organisation valuation amount was a low valuation and more could be achieved if the property was sold through an independent real estate agent. Therefore, you and your sibling had elected to have the title of the property transferred into your names. It was always your intention to sell the property as soon as it had been transferred from the deceased's estate • You experience significant difficulty in dealing with the Organisation throughout the administration of the deceased's estate. The finalising of the administration was delayed and extended due to the Organisation's slow processing and handling of the administration process • You had requested the title of the property be transferred into you and your sibling's names several times during the administration of the deceased's estate. Transfer documents had been signed and returned to the Organisation during the month after the deceased had passed away, with the understanding that the property would be transferred into you and your sibling's names to enable the sale of the property. However, this had not occurred and several requests had been made following the signing of the documents but the transfer was not competed • After the property was transferred into you and your sibling's names, around 25 months after the deceased had passed away, the property was immediately put on the market, with a contract of sale signed during the following month. As expected, the sale price received was considerably higher than the market valuation provided by the Organisation • The disposal of your share of the property was outside of your control due to the handling of the deceased's estate by the Organisation. You had done everything within your control to enable the sale of the property within the required time frame. As soon as available, the property was placed on the market and sold. However, due to the delays, the sale of the property fell outside of the two year requirement to continue claiming the main residence exemption on your share of the property; and • It was not beneficial to allow the Organisation to sell the property directly due to their inefficient sale practices, being open homes and auctions during the week, and low valuation. The Organisation would have accepted an offer for the estimated market value, which was significantly lower than the eventual sale price.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Subsection 118-130(3) | Income Tax Assessment Act 1997 Section 118-195

Reasons for decision: Summary: The Commissioner will exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time until settlement on the disposal of the property occurred. | Detailed Reasoning - Detailed reasoning: The capital gains provisions allow for concessional treatment to be given to a property that was owned by a deceased person if the executors of the deceased person's estate sell that property within two years of the date of death. Any capital gain or capital loss made on the sale of such a property is disregarded if the property 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 property and the cause of the delay is beyond their control (for example, if the will is challenged). There must not be any other factors mitigating against exercising it. The delay in the disposal of the property was due to the lengthy period of time the Organisation had taken to administer the deceased's estate and transfer the title of the property to the beneficiaries, being you and your sibling, as disclosed in your private ruling request. In your case, it is viewed that the delay caused by the Organisation was outside of your control. As a result of these delays, the sale of the property could not be completed within the two year period after the deceased had passed away. After reviewing the facts of this situation, the Commissioner accepts that it is appropriate to grant the extension that you have requested.