Private ruling: Commissioner’s discretion to extend the two year period in which to dispose a dwelling
Date of advice: 18 February 2019
Published: May 2019
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner allow an extension of time to XX/XX/20XX for you to dispose of your ownership interest in the dwelling and disregard the capital gain or loss you make on disposal? | A1: No

Relevant facts and circumstances: The deceased died on XX/XX/20XX. The deceased owned a property at XXXX. The deceased acquired this property on XX/XX/20XX. The property was the deceased’s main residence. The property was not more than 2 hectares. Probate was granted on XX/XX/20XX. The property was sold on XX/XX/20XX. You have advised that the reason for the delay in selling the property was that the deceased handled the accounting and taxation matters of their family, they died unexpectedly, and given their role within the family it took a substantial amount of time for the family to gather the information necessary to bring their financial affairs to order and to gain an understanding of what steps were to be taken to attend to the windup of their affairs. The deceased’s will provided that the residue of their estate after payment of their debts, funeral and testamentary expenses, was to be given to certain family members. The estate included the following assets: ● The property at XXXX ● Furniture and household effects contained in the dwelling ● A motor vehicle ● Cash ● Shares in companies ● Superannuation The estate contained the following liabilities: ● Mortgage over XXXX ● Car finance loan ● Personal loan ● Credit card debt

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1997 subsection 118-195(1)

Reasons for decision: Summary: Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that if you own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an estate), then you are exempt from tax on any capital gain made on the disposal of the property if: ● the property was acquired by the deceased before 20 September 1985; or the property was acquired by the deceased 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; and ● your ownership interest ends within 2 years of the deceased’s death (the Commissioner has discretion to extend this period in certain circumstances). You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed). In this case, the deceased acquired a 100% interest in the property in 20XX. The property was the main residence of the deceased until they passed away on XX/XX/20XX. The property was sold more than 2 years after the deceased’s death. The Commissioner can exercise his discretion in situations such as where: ● 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 (for example, they 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 circumstances outside the beneficiary’s or trustee’s control | Detailed Reasoning - Application to your circumstances: The deceased handled the accounting and taxation matters for the family. Due to the deceased’s role in the family, the family found it difficult to organise their estate which resulted in the dwelling being sold more than 2 years after the deceased’s death. The Commissioner can exercise his discretion in situations where the delay was outside the control of the trustee or beneficiary such as those listed previously. Where the trustee and beneficiaries are having difficulties administering an estate due to their lack of financial expertise or experience, then it would be open to them to engage an accountant or solicitor to assist them with the aspects of the administration that they are having difficulties with. While we appreciate the circumstances in this case, there has been no challenge to the will, the estate was not complex, there were no unforeseen or serious personal circumstances that prevented the sale, and the delay in selling the property was not due to circumstances beyond the beneficiary’s or trustee’s control. Having considered the relevant circumstances, the Commissioner will not exercise his discretion and extend the 2 year time limit. | Detailed Reasoning - Additional information: Where a dwelling was the deceased’s main residence just before their death and was not then being used for the purpose of producing assessable income, for capital gains tax purposes the trustee of the deceased estate is taken to have acquired the dwelling on the date of death with the first element of the cost base being the dwelling’s market value at that date (section 128-15 of the ITAA 1997).