Private ruling: CGT – deceased estate – Commissioner’s discretion to extend the two year period
Date of advice: 23 October 2017
Published: March 2018
Ruling period: Year ended 30 June 2018.
Date scheme commenced: 1 July 2017.

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 until DDMMYY? | A1: No.


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 not 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. The Commissioner expects the executor of a deceased estate to make reasonable enquiries about matters that affect the administration of the estate. You should have been aware that there were conditions that had to be met if the sale of the property was to be exempt from the capital gains provisions. The lease negotiations have caused delays, however the period of time from the deceased date of death until the new lease was finalised was more than X years. This period is lengthy and other options could have been pursued if the sale of the property was to be exempt from the capital gains provisions. The renovations to the dwelling have delayed the sale of the property and this was not an impediment to the sale of the property, but may have affected the sale price you would receive. You were able to engage others to undertake the renovations if required. While we appreciate your particular circumstances, the period taken to dispose of the dwelling is approximately five and a half years and is too lengthy. In determining whether or not to grant an extension the Commissioner is also expected to consider whether and to what extent the dwelling is used to produce assessable income and how long the trustee or beneficiary held it. Having considered the relevant facts, the Commissioner will not apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit. The normal capital gains tax (CGT) rules will apply to the disposal of the property.

The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions. | The deceased acquired a dwelling (the dwelling) | The deceased passed away in 2012. (The deceased) | The dwelling was the deceased’s main residence. | The land is approximately less than 2 hectares and is zoned industrial. | The land also comprised a business (‘A’). | The land was not an active asset of the deceased. | ‘A’ was operated with an existing lease in place at the time of the deceased’s death. The lease contained a clause providing the existing tenant had the 'first right of reply' to purchase the property if it was listed for sale during the lease period. | The executor did not list the property for sale during the existing lease period as this would have resulted in an unfair sale price. | The existing lease expired in 2015. | You commenced lease negotiations in 2015 and these become protracted and ultimately resulted in a new lease being executed in 2016. | The dwelling and surrounding land required substantial renovation and repairs. The deceased had accumulated a large amount of personal items which required the executor to devote significant time. This included excess building materials and removal of rubbish. | The executor did not reside locally and was required to travel when available to attend to the preparation of the dwelling for sale. | The dwelling was in a poor state of repair and required extensive renovation, including electrical and plumbing issues in order to make the dwelling safe, habitable and to present the dwelling in a saleable position. | The property was listed for sale and settlement occurred on DDMMYY.