Private ruling: Extension of time request
Published: February 2013
Ruling period: Year ended 30 June 2011
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 passed away in the 2008-09 financial year. There are X beneficiaries entitled to a proportional interest in the Estate. The deceased owned a property that was their main residence. The property was put on the market for sale in the 2008-09 financial year and an agreement of sale was reached in the 2010-11 financial year. Contracts for the property were formally exchanged, subject to finance. The period for exchanging contracts on the property was extended as a result of the purchases working overseas. The settlement was then delayed due to rejection of the purchaser's application for finance. Settlement of the property occurred outside of the two year period. The property has never been used to produce assessable income.

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

Reasons for decision: Summary: As per subsection 118-195(1) of the 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. | Detailed Reasoning - 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 the property passed to the executors of the estate. The property was acquired by the deceased before 20 September 1985 and it was their main residence just prior to their death. The property was sold outside the two year period outlined in subsection 118-195(1) of the ITAA 1997. Therefore, the estate will only be able to disregard the capital gain from the sale of the property if the Commissioner grants an extension to the two year time limit. The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion: a) the ownership of a dwelling or a will is challenged, b) the complexity of a deceased estate delays the completion of administration of the estate, c) 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 d) 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 settlement of the contract of sale over the dwelling was delayed for reasons outside the trustee's control. The property was never used to produce assessable income and was held by the trustee for just over X years. 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.

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