Private ruling: CGT - Commissioner's discretion
Published: December 2014
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and extend the two year time period? | A1: Yes. | Q2: Will the Commissioner exercise his discretion under subsection 152-80(3) of the ITAA 1997 and extend the two year time period? | A2: Yes.

Relevant facts and circumstances: The deceased acquired a property and used it as their main residence from the date of acquisition until they passed away. The property has never been used to produce assessable income and has remained vacant since the deceased passed away. The Estate has been difficult to administer due to circumstances beyond your control. Probate was granted sometime after the deceased passed away. The property has been disposed of and settlement has occurred. At the time of passing the deceased also owned CGT assets, which were active assets at that time. All other conditions for the small business capital gains tax (CGT) concessions would have been satisfied if the deceased had disposed of these CGT assets prior to his death.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-195(1) | Income Tax Assessment Act 1997 Division 152 | Income Tax Assessment Act 1997 section 152-80 | Income Tax Assessment Act 1997 subsection 152-80(1) | Income Tax Assessment Act 1997 subsection 152-80(3)

Reasons for decision: Summary: A capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling is disregarded if: • you owned it as the trustee of a deceased estate • the deceased acquired the dwelling on or after 20 September 1985 • the dwelling was the deceased's main residence just before the deceased's death and the dwelling was not then being used for the purpose of producing assessable income, and • you dispose of the dwelling within 2 years of the deceased's death, or within a longer time period allowed by the Commissioner (subsection 118-195(1) of the ITAA 1997). You satisfy all of the above conditions except that you did not dispose of the dwelling within 2 years of the deceased's death. Therefore, you will only be able to disregard the capital gain you made on the sale of the dwelling if the Commissioner extends the 2 year time limit. Generally, the Commissioner allows a trustee a longer time period to dispose of a dwelling where the delay is due to circumstances which are outside of the trustee's control, such as when the ownership of a dwelling or a will is challenged, or the complexity of a deceased estate delays the completion of administration of the estate. In determining whether or not to allow a longer time period to dispose of the property the Commissioner also takes into account whether and to what extent the dwelling is used to produce assessable income and for how long the trustee owned the dwelling. In your case, the dwelling was never used to produce assessable income and was disposed of soon after probate was granted. The delay in disposing of the dwelling was due to circumstances beyond your control. The Commissioner extends the period to dispose of the dwelling so that you can disregard the capital gain or loss made on the disposal. The executor of an Estate, subject to certain conditions, can access the small business CGT concessions to the extent that the deceased would have been able to access them just before his death. Specifically, the following conditions must be satisfied: • a CGT asset devolves to the executor • the deceased would have been entitled to reduce or disregard a capital gain under Division 152 of the ITAA 1997 if a CGT event had happened in relation to the CGT asset immediately before his death, and • a CGT event happens in relation to the CGT asset within 2 years of the deceased's death (subsection 152-80(1) of the ITAA 1997). The Commissioner may extend the 2 year time limit (subsection 152-80(3) of the ITAA 1997). In determining whether the 2 year time limit will be extended the Commissioner considers the following factors: • evidence of an acceptable explanation for the period of the extension requested (and whether it would be fair and equitable in the circumstances to provide such an extension) • prejudice to the Commissioner which may result from the additional time being allowed (but the mere absence of prejudice is not enough to justify the granting of an extension) • unsettling of people, other than the Commissioner, or of established practices • fairness to people in like positions and the wider public interest • whether any mischief is involved, and • consequences of the decision. Having regard to these factors and applying them to your circumstances the Commissioner will extend the 2 year time limit. The delays in obtaining probate were outside of your control and you have made continuing efforts to administer the Estate. In the circumstances the period of the extension you have requested is considered fair and reasonable. Extending the time period will not prejudice the Commissioner; nor will it involve the unsettling of people, other than the Commissioner or of established practices. The ability to apply for an extension of time is available to all people with similar circumstances and the decision to allow extra time is not unfair to people in like positions or detrimental to the wider public interest. There is no evidence of any mischief and allowing the extension will enable you to apply the small business CGT concessions to reduce or disregard the capital gain made in the same way the deceased would have been able to do if the CGT event happened immediately before their death.