Private ruling: CGT - deceased estate and two year extension
Published: March 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

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 to year ended 30 June 2012? | A1: Yes

Relevant facts and circumstances: The deceased died on in year ended 30 June 2009. The deceased's family member was appointed executor of the deceased's will, and in turn, appointed an estate service company to act on his/her behalf in the administration of the estate. One of the main assets of the estate was the deceased's house (the property). The property was the principal residence of the deceased prior to living in an aged residential care facility up to the date of death. The executor survived the deceased, but died prior to obtaining a Grant of Probate. An application for probate of the will of the deceased was lodged in the Supreme Court in the relevant state in year ended 30 June 2010 for the appointment of the executor. At this time, the estate service company was in the process of organising an auction for the sale of the property. The auction resulted in a contract for sale on the property, conditional on probate being issued by the Supreme Court. The Supreme Court advised subsequent to the execution of the contract for sale of the property, that they would not issue a Grant of Probate, but that the executors of the deceased's executor's estate would need to make an application for Letters of Administration with will annexed in the relevant State once the executor's probate had issued in that state. The Letters of Administration in the deceased's estate were issued in year ended 30 June 2011. Due to the time that elapsed in the administration of the deceased's estate, a new contract for sale had to be entered into with the purchasers. The property was never used to produce assessable income. Settlement on the sale of the property occurred in year ended 30 June 2012.

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

Reasons for decision: Summary: As per subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling, or your ownership interest in it, is disregarded if: (a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and (b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied. Beneficiary or trustee of deceased estate acquiring interest Item One of these items is satisfied And also one of these items 1 the deceased *acquired the *ownership interest 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 your *ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner ........... 2 the deceased *acquired the *ownership interest before 20 September 1985 the *dwelling was, from the deceased's death until your *ownership interest ends, the main residence of one or more of: (a) the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or (b) an individual who had a right to occupy the dwelling under the deceased's will; or (c) if the *CGT event was brought about by the individual to whom the *ownership interest *passed as a beneficiary - that individual In this case, when the deceased died the property passed to beneficiary and executor of the deceased's estate. The property was not used to produce assessable income and it was the deceased's main residence prior to death. The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion to extend the time period in which you can dispose of the property: 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 (eg 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. In determining whether or not to grant an extension the Commissioner is 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 this case, the delay was caused by the complexity of the deceased's estate. The administration of the deceased's estate could not be finalised until a Grant of Probate was obtained. Due to the beneficiary/executor's death a short time after the deceased, this Grant of Probate could not occur until the executors of the beneficiary's estate had made an application for Letters of Administration with will annexed in the relevant state, following the beneficiary's own probate issuing in that state. The Letters of Administration in the deceased's estate were issued in year ended 30 June 2011. These delays prevented the trustee from disposing of the property within the two year time limit. The property was never used to produce assessable income. 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 year ended 30 June 2012.