Private ruling: Capital gains tax - deceased estate - Commissioner's discretion - two year period
Date of advice: 26 May 2016
Published: July 2016
Ruling period: Year ended 30 June 2017.
Date scheme commenced: 1 July 2016.

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow a further extension of time to the two year period? | A1: Yes.

Relevant facts and circumstances: The deceased acquired a property prior to 20 September 1985. The deceased passed away in 20XX. The main beneficiaries are the deceased's children. The executor obtained a grant of probate in 20YY. The property adjoins a school that is undertaking capital works. The capital works involves excavation, deep piling and site retention works involving ground anchors which penetrate deep into the property. The capital works have adversely impacted the ability of the executor to market the property for sale. Due to the scale and proximity of the development works on the adjoining property, local real estate agents have advised that prospective purchasers would be significantly deterred from purchasing the property at this time and have advised against placing the property on the market. The capital works are planned to be completed within a number months. The property is not used to produce income. Previously, the Commissioner exercised his discretion and allowed an extension of time to the two year period. Since receiving the discretion, you have been advised the capital works have been delayed and now plan to be completed a few months after the original completion date.

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 | Income Tax Assessment Act 1997 subsection 118-195(1)

Reasons for decision: Summary: The Commissioner will exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time until 31 January 2017. 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 case, the delay in disposing of the property is due to ongoing capital works to the adjacent property that are beyond your control. As a result the settlement occurred after the two year period. 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 A date in 2017.