Private ruling: Capital gains tax – deceased estate – Commissioner’s discretion
Date of advice: 7 July 2017
Published: November 2017
Ruling period: Year ended 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 purchased the dwelling prior to 20 September 1985 (the dwelling). In 20XX the deceased commenced living in a nursing home. Several months later deceased passed away (the deceased). For the purposes of this ruling, you as the administrator of the estate have made the absence choice in relation to treating the dwelling as the deceased main residence from the date the deceased commenced living in a nursing home until the date of the deceased 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. Approximately 8 months after the deceased passed away you engage Solicitors and present the will. The will was deemed inadmissible as two pens were used when filling out and signing the will. Shortly after the will was deemed inadmissible the Solicitor filed for intestate at the Probate Registry Oath and Letters of Administration were submitted following the reply from the Probate Registry. Supreme Court Probate Registry documents were filed. Approximately 17 months after the death of the deceased Letters of Administration (LOA) were granted. The Public Trustee requested documentation. Approximately six months after LOA was granted the Public Trustee accepted that there were no further requirements. The land title was transferred to the estate and sale proceeding commenced. Settlement occurred approximately 10 months after letters of administration was granted.

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 | Income Tax Assessment Act 1997 subsection 118-195(1)

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 the requested date. | 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 2 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 complexity of the deceased estate delayed the completion of administration of the estate due to the deceased’s will being deemed inadmissible by your solicitors causing the estate to be administered intestate. This resulted in a delay in gaining the Grant of Letters of Administration and settlement occurring sometime after the two year period. Having considered the relevant facts, the Commissioner is able to apply his discretion under Section 118-195 of the ITAA 1997 and allow a reasonable extension to the time limit.