Private ruling: Deceased estate
Published: December 2013
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2013

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 passed away in the 2011-12 financial year leaving a house as part of their estate. The property was purchased after 1985 with a family member as tenants in common. When the other family member passed away, the property passed to the deceased under their will. The house is situation on less than two hectares of land and was used as the deceased's main residence prior to death. The property has not been used for an income producing purpose. In late 2012, a close relative of the executor of the deceased estate was diagnosed with a terminal illness and they passed away months later. The grief and stress of the illness and subsequent death of the relative meant the executor was unable to properly attend to the deceased estate. The property is now expected to be sold and settled in the 2014-15 financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-195(1)

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 states that if you own a dwelling in a capacity as trustee of a deceased estate, then you are exempt from tax on any capital gain made on the disposal of the property 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 this period in certain circumstances). In this case, the property was purchased after 1985 as tenants in common with a family member. The deceased inherited the family member's interest on their death. The property was the deceased's main residence until they passed away in the 2011-12 financial year and the property is expected to be sold and settled in the 2014-15 financial year. You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed). You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the 2 year time period. The Commissioner can exercise his discretion in situations such as where: · the ownership of a dwelling or a will is challenged; · the complexity of a deceased estate delays the completion of administration of the estate; · 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 · settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control | Detailed Reasoning - Application to your circumstances: In this case, a close relative of the executor of the deceased estate was diagnosed with a terminal illness in late 2012 and they passed away months later. The grief and stress of the illness and subsequent death of the relative meant the executor was unable to properly attend to the deceased estate. Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.