Private ruling: Capital gains tax - deceased estate - Commissioner's discretion
Published: November 2013
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Commissioner exercise 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: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The deceased owned a property. The property was their main residence. Under a clause of the deceased's will the beneficiary had the use of the property during their lifetime. Approximately two years ago probate was granted by an Australian state Supreme Court. Two years ago an affidavit was sworn in by beneficiary. This prevented the administration of the estate until a court hearing. Shortly after a summons was filed by an Australian state Supreme Court. During a specified period a number of court hearings were called in the matter. Mediation was ordered between the executor/trustee of the estate and the beneficiary. However, this was unsuccessful. Mid this year there was a court hearing where the judge stated in a specified order 'the court notes the intention of the executors to proceed to sell the balance of the estate realty as soon as practical'. Shortly after a real estate agent was appointed to dispose of the property. A month later contracts for the sale of the property were exchanged at the conclusion of the auction. A month later settlement for the sale of the property occurred.

Relevant legislative provisions: 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: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. A capital gain or capital loss is disregarded under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) where a CGT event happens to a dwelling if it passed to you as an individual beneficiary of a deceased estate or you owned it as the trustee of the deceased estate. The availability of the exemption is dependant upon: · who occupied the dwelling after the date of the deceased's death, or · whether the dwelling was disposed of within two years of the date of the deceased's death. For a dwelling acquired by the deceased, you will be entitled to a full exemption if: · the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of the following relevant individuals: · the spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased) · an individual who had a right to occupy the dwelling under the deceased's will, or · an individual beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary, or · your ownership interest ends within two years of the deceased's death. In your case, when the deceased died, the property passed to you. The property was the deceased's main residence prior to death, and at that time, was not being used to produce assessable income. However, the property was not occupied by a relevant individual after the deceased's death and therefore this basis of exemption is not available. Subsection 118-130(3) of the ITAA 1997 provides that where the sale or other disposal of the dwelling proceeds under a contract, the ownership interest ends at the time of settlement of the contract of sale and not at the time of entering the contract. The property sale settled more than two years after the deceased's death, therefore, the alternative basis of exemption is also not satisfied. However, subsection 118-195(1) of the ITAA 1997 confers on the Commissioner discretion to extend the two year exemption period, thus this alternative basis of exemption in the provision may apply. The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion: · 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 (e.g. 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 reasons outside the beneficiary or trustee's control. The delay in disposing of the property was caused by the beneficiary lodging an affidavit which prevented the administration of the estate until a court hearing. Delays were caused by a number of court hearings called in the matter which did not resolve the issue. The issue was resolved mid this year, when the judge stated in a specified order 'the court notes the intention of the executors to proceed to sell the balance of the estate realty as soon as practical'. 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. In your circumstances, we consider that you had not been able to sell the property due to circumstances beyond your control. 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.