Private ruling: Capital gains tax - deceased estate - Commissioners Discretion
Date of advice: 8 December 2015
Published: February 2016
Ruling period: Income year ending 30 June 2015
Date scheme commenced: The scheme has commenced

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 to dispose of the property until the settlement date occurred? | A1: Yes.

Relevant facts and circumstances: The property was purchased by the deceased and their spouse as joint tenants before 20 September 1985. The property was their main residence until the deceased's spouse passed away a number of years later. The deceased was the intended executor of their spouse's estate. However, the deceased was suffering from a medical condition and could not apply for probate. The deceased's child (the Trustee) was appointed as the replacement executor for the deceased spouse's estate. The deceased passed away a number of months after their spouse had passed away. The deceased's will, named their spouse as the executor of their estate. However, the Trustee was appointed as the replacement executor (the Trustee) of the deceased's estate. As the Trustee for both of the deceased estates, the Trustee had to obtain probate for both of their parent's estates around the same time. The application for probate on the deceased's estate was subject to requisitions from the Probate Registry of the Supreme Court relating to a statutory declaration which the deceased had made and attached to their will. The requisitions took some time to address and to obtain approval from the Probate Registry. Probate on the deceased's spouse's estate was granted around nine months after they had passed away. Probate on the deceased's estate was granted around five months after the deceased had passed away. The Trustee's child (Child A) suffers from serious ongoing medical conditions which prevents the Trustee from having full-time employment due to the need to care for Child A and take them for medical appointments and treatment. Around the time that probate, on both of the estates was granted, Child A was diagnosed with another medical condition with the prognosis that Child A would be unable to assist themselves within months. The Trustee and their spouse were informed of Child A's prognosis at that time. During the periods that Child A was hospitalised, the Trustee would stay at the hospital to assist Child A, with the Trustee's other child remaining at their home with the Trustee's spouse. Around eleven months after the deceased passed away, Child A had an operation and had spent weeks in the hospital recovering from the operation. During the following month, Child A returned home to continue their recovery, however they collapsed a number of weeks later and had to return to hospital where they stayed for a number of weeks. The Trustee stayed in the hospital with Child A during that period. After Child A returned home, the Trustee undertook some cleaning of the deceased's property. However, after Child A had been home for about two weeks they were again admitted to the hospital where they stayed for a number of weeks. During this period Child A had missed several months of schooling during which the Trustee had been their prime carer. The Trustee's health had suffered during that time and they had been unable to cope with any other stress, including the preparing the deceased's property for sale. The Trustee's residence is a round trip of over X kilometre round trip from the deceased's residence, and the Trustee was unable to allocate time away from Child A to complete the travel and work involved with preparing the deceased's property for sale. During early 20XX, Child A was in and out of hospital for most of that time. Around 20 months after the deceased had passed away, the Trustee was admitted to hospital for an operation. During that time, the Trustee kept in contact with a real estate agent in relation to the deceased's property. Around two years after the deceased had passed away, the real estate agent suggested that they could make arrangements with a company that could assist the Trustee by going to the property and packing up the contents of the deceased's house, delivering the contents to the Trustee's property. They would also clean the deceased's property ready for sale. The Trustee agreed for this to be done and when it was completed the deceased's property was put on the market. The Trustee had completed a survivorship application when the deceased's spouse had passed away and a transmission application prior to the disposal of the property as the Trustee of the deceased's estate. Settlement on the disposal of the deceased's property occurred over 24 months after the deceased had 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: 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 settlement on the disposal of the property occurred. | Detailed Reasoning - Detailed reasoning: The capital gains provisions allow for concessional treatment to be given to a dwelling that was owned by a deceased person if the executors of the deceased person's estate sell that dwelling within two years of the date of death. Any capital gain or capital loss made on the sale of such a dwelling is disregarded if the dwelling was: • Acquired by the deceased before 20 September 1985, or • The deceased's main residence when they died The Commissioner has the discretion to extend the two year period. This extension is generally only granted where the executors are merely arranging the ordinary sale of the dwelling and the cause of the delay is beyond their control (for example, if the will is challenged). There must not be any other factors mitigating against exercising it. Settlement on the disposal of the property had occurred around four months outside of the two year period from the date the deceased passed away. In this case, the delay in the disposal of the property was due to: • the complex nature of the deceased's estate, given that the Trustee had to administer not only the deceased's estate but also the estate of the deceased's spouse • The Trustee had serious personal circumstances, with one of their children suffering from chronic medical conditions, who had required hospitalisation during the two year period and had been further diagnosed with another chronic medical condition during that period; and • The Trustee had also required an operation during the two year period. As a result of these delays, the sale of the property had not been completed within the two year period after the deceased had passed away. After reviewing the facts of this situation, the Commissioner accepts that it is appropriate to grant the extension that you have requested.