Private ruling: CGT - deceased estate - 2 year discretion
Published: May 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2010.

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 after 20 September 1985 and passed away a number of years later. The dwelling had been the deceased's principle place of residence, and had not been used to produce income. A delay in the administration of the deceased's estate was due to the deceased passing away intestate which meant that the Letters of Administration could not be applied for until certain requirements had been met. As a result, the application for the Letters of Administration had not been submitted to the Supreme Court until about 12 months had passed after the deceased had passed away. The Letters of Administration had been granted a number of months later. The deceased had a medical condition and had been under the care of a State Trustee. The dwelling had been uninhabitable and unsaleable at the time of the deceased's death due the state of the dwelling. Following the granting of the Letters of Administration, substantial clean-up work was required before the dwelling could be repaired in readiness for its disposal. The time needed for the repairing of the dwelling had been hampered by the upswing in property market of the city in which the dwelling was located, which had resulted in difficulty in securing tradesmen to perform the repairs. On completion of the repairs, the dwelling had been listed for auction and had been sold with settlement occurring around four weeks after the auction. Copies of documentation have been provided with the private ruling application, which should be read in conjunction with, and forms part of the description of the scheme for the purposes of this private ruling.

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: Commissioner's discretion under Section 118-195 of the ITAA 1997 Subsection 118-195(1) of the ITAA 1997 provides a capital gains tax (CGT) exemption to a beneficiary or trustee of a deceased estate where a CGT event happens to a dwelling (or an ownership interest in a dwelling) acquired from a deceased estate. An exemption is provided where the beneficiary or trustee's ownership interest in the dwelling ends within two years of the deceased's death and just before the deceased's death (for pre-CGT dwellings) the dwelling was their main residence. The Commissioner has discretion to extend the two year time period in subsection 118-195(1) of the ITAA 1997 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. In your submission, you state that the delay in disposing of the deceased's dwelling was due to the delay in getting the administration of the estate completed as a result of the deceased passing away intestate. As a result, a search for a will had to be conducted, and the time in which claims against the estate could be made needed to pass before the Letters of Administration could be submitted to the Supreme Court. Also, the deceased had a medical condition and the dwelling had been uninhabitable and unsaleable when the deceased had passed away and required a substantial amount of cleaning and repairs to get it into a saleable condition. We have taken the facts of your situation into consideration when determining whether the Commissioner's discretion would be exercised 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 above mentioned issues arising during the two year period after the deceased had passed away. 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 to dispose of the relevant property until settlement date on the disposal of the dwelling occurred.