Private ruling: Capital gains tax - deceased estate - Commissioner's discretion to extend the two year period
Published: May 2015
Ruling period: Income year ended 30 June 2015.
Date scheme commenced: 1 July 2014.

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 and their spouse acquired the dwelling before 20 September 1985. The deceased's spouse passed away a number of years later and the deceased had continued living in the dwelling until they passed away. The deceased had been the sole carer of their disabled child from the time their spouse had passed away until they had also passed away. The trustee of the deceased's estate has experienced serious personal circumstances during the two years since the deceased passed away, such as caring for their spouse, and taking on the role of carer for the deceased's disabled child. They had taken time to adjust to the situation, as well as trying to finalise the deceased's financial affairs and deal with the deceased estate assets in accordance with the terms of the deceased's will. Due to the serious personal hardships the trustee had been experiencing in relation to their spouse's health and the care of the deceased's disabled child, the trustee had been unable to attend to the sale of the deceased's dwelling within the two year period. During 2014, the trustee had arranged for the disposal and distribution of the contents of the deceased's dwelling and had then placed the dwelling on the market. The dwelling has been disposed of, with settlement occurring during 2015. The dwelling had never been used to derive assessable income during the deceased's ownership period, and was vacant and not used to derive rental income after the deceased had passed away until the disposal of the dwelling.

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: Commissioner's discretion under Section 118-195 of the ITAA 1997 Subsection 118-195(1) of the ITAA 1997 provides a capital gains tax (CGT) exemption to a beneficiary or trustee of a deceased estate where a CGT event happens to a dwelling (or an ownership interest in a dwelling) acquired from a deceased estate. An exemption is provided where the beneficiary or trustee's ownership interest in the dwelling ends within two years of the deceased's death and just before the deceased's death (for pre-CGT dwellings) the dwelling was their main residence. The Commissioner has discretion to extend the two year time period in subsection 118-195(1) of the ITAA 1997 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. We accept that the reason for the delay in the disposal of the deceased's dwelling was due to serious personal circumstances arising during the two year period after the deceased's passed away. Using the guidelines provided, in particular point 3 above, and having considered the relevant facts of your situation, 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 until the date the settlement on the disposal of the dwelling occurred.