Private ruling: Capital gains tax – deceased estate – Commissioner’s discretion
Date of advice: 19 December 2017
Published: May 2018
Ruling period: Year ended 30 June 201Y.
Date scheme commenced: 1 July 201X.

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 purchased the dwelling after 19 September 1985 (the Dwelling). The Deceased passed away in July (the Deceased). The Dwelling was the Deceased’s main residence at the time of their death. The Dwelling was not used for income producing activities and no income has been received from the Dwelling after the passing of the Deceased. The Deceased’s X children were beneficiaries of the will in equal shares, X% each. Approximately 9 months after the Deceased passed one of the X beneficiaries, Beneficiary A, filed an application with the Relevant Court seeking further provision from the Deceased’s estate. At the time the application was filed, Beneficiary A was residing in the Dwelling with other occupants. Approximately four years later, after protracted negotiations, an agreement was eventually reached in principle to settle the application. During the negotiations, Beneficiary A and other occupants continued to reside in the Dwelling. It was a requirement of the settlement that Beneficiary A and the other occupants of the Dwelling vacate the Dwelling and leave the Dwelling in good repair, order, and condition to enable it to be sold. Approximately one month after the agreement was reached Beneficiary A vacated the Dwelling. The other occupants of the Dwelling did not vacate the Dwelling until some months later. The Dwelling was left in a state of disrepair when it was vacated. In order for the Dwelling to be prepared for sale, the executor was required to undertake a number of inspections (including building inspections), and undertook work to clear the Dwelling, as it was not in a saleable condition at the time it was vacated. Approximately 12 months after the agreement was reached the Dwelling was sold at auction. At the same time the Court approved the settlement reached in the application and made final orders. Approximately a month later the Dwelling was settled.

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. | Detailed Reasoning - Detailed reasoning: In certain circumstances, section 118-195 of the ITAA 1997 provides that the trustee of a deceased estate may disregard an assessable gain or loss made from the disposal of a property that passed to them in their capacity as trustee of a deceased estate 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 two years of the deceased’s death. The Commissioner has discretion to extend the two year time period where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death. This discretion may be exercised in situations such as where: 1) the ownership of a dwelling or a will is challenged; 2) the complexity of a deceased estate delays the completion of administration of the estate; 3) 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 4) Settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control. These examples are not exhaustive, but provide guidance on what factors the Commissioner would consider reasonable to exercise his discretion to extend the two year period to dispose of an inherited property. In exercising the discretion the Commissioner will also take into account whether and to what extent the property is used to produce assessable income and for how long the trustee or beneficiary held the ownership interest in the property. Whether the Commissioner will exercise his discretion under subsection 118-195(1) of the ITAA 1997 will depend on the facts of each case. In your case, the delay in disposing of the dwelling was due to the will of the deceased being challenged. This delay prevented you from disposing of the dwelling within the two year time limit. The Commissioner accepts that it is appropriate to grant the short extension that you have requested.