Private ruling: The Commissioner’s discretion to extend the two year time limit to dispose of a dwelling
Date of advice: 26 April 2018
Published: July 2018
Ruling period: Year ended 30 June 20XX.
Date scheme commenced: 1 July 20XX.

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 acquired a dwelling after 19 September 1985. The dwelling was an investment property and the purchase was subject to an existing tenancy agreement. After the tenancy agreement expired, the deceased occupied the dwelling as his main residence. The deceased passed away sometime after moving into the dwelling. The Australian Executor Trustees Ltd (AET) first became aware of a potential inheritance claim in shortly after the deceased’s death, from a relative of the deceased (the relative). The relative’s solicitors wrote directly to all the residuary beneficiaries asking them to consider a cash settlement from the estate. This was rejected. The deceased’s relative then commenced inheritance claim procedures by issuing a summons in a Supreme Court. An informal settlement conference was shortly after with no agreement reached. A Directions Hearing was then held with the judge ordering that a Settlement Conference be held. A settlement agreement was reached at that conference. A Court Order then issued 15 months after the deceased death. The beneficiaries were kept informed of all matters via their solicitors. AET engaged a real estate agent to commence the marketing campaign for the dwelling. The real estate agent discovered that the deceased had erected a veranda/carport at the property just before his death and that it was potentially not in accordance with the plans lodged with the Local Council. On inspection, the Local Council ordered that the building be rectified in order to comply with the requisite construction and safety laws. AET arranged for this construction. The real estate agent was then finally able to commence the marketing campaign. The dwelling was sold with settlement occurring two years and seven months after the deceased’s death.

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. | Detailed Reasoning - Detailed reasoning: The capital gains provisions allow for concessional treatment to be given to a dwelling that was owned by a deceased person if the executors of the deceased person’s estate sell that dwelling within two years of the date of death. Any capital gain or capital loss made on the sale of such a dwelling is disregarded if the dwelling 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 dwelling 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. In your submission, you state that the delay in disposing of the dwelling was due to an inheritance claim that was brought against the estate, with the process beginning shortly after the deceased’s death, and concluding with a Court Order being issued. Fifteen months had passed since the deceased’s death by the time this matter had been resolved. At this point a real estate agent was engaged to commence marketing the dwelling for sale, however, a further delay was encountered in the form of a veranda/carport that had been added to the dwelling that was not in accordance with the plans lodged with the local council. The AET, as per the local council’s orders for the building to be rectified, arranged for the necessary construction to take place. Marketing was then able to begin. The dwelling was sold, with settlement occurring two years and seven months after the date of the deceased’s death. We have taken the facts of your situation into consideration when determining whether the Commissioner’s discretion would be exercised to extend the two year period and allow you to disregard any capital gain or capital loss made on the disposal of the dwelling under subsection 118-195(1) of the ITAA 1997. We accept that the reason for the delay in the disposal of the deceased’s dwelling was due to the above mentioned issues arising during the period after the deceased had passed away. Using the guidelines provided 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. The Commissioner accepts that it is appropriate to grant the extension that you have requested.