Private ruling: Commissioners discretion to extend the two year period - deceased estate
Published: June 2015
Ruling period: Year ended 30 June 2014.
Date scheme commenced: 1 July 2013.

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: Your parent, the deceased, passed away after 20 September 1985. The deceased's estate included a dwelling (the dwelling) that had been acquired by the deceased prior to 20 September 1985. You were one of the beneficiaries of the deceased's estate. A delay in the administration of the deceased's estate occurred due to the disagreement amongst the family members as to whether to keep or disposal of the dwelling. The dwelling was transferred into the names of the beneficiaries as tenants in common and was put on the market for sale. A contract of sale was entered into around 20 months after the deceased had passed away, with finance to be approved in a set period from the contract date and settlement to occur around eight months after the contract had been entered into. The purchasers had asked for a number of extensions to the settlement date, which you and your siblings had tried to accommodate. However, the contract of sale had been cancelled in the month after the contract of sale had been signed. The dwelling had been relisted for sale, and a new contract of sale had been signed around three years after the date the deceased passed away. Settlement on the disposal of the dwelling occurred around X months later, being over three years after the date the deceased passed away.

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 dwelling was due to disagreements amongst family members and the cancellation of the original contract of sale. While the settlement date on the original contract of sale would have occurred after the two year period had passed, we accept that a reasonable effort had been made to dispose of the dwelling within the two year period. The original settlement date had been agreed to under the contract of sale as a requirement of the purchaser, and the cancellation of the contract had been outside of your control. Having considered the relevant facts, the Commissioner will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit until the date that settlement on the disposal of the dwelling had occurred.