Private ruling: CGT - deceased estate
Date of advice: 10 November 2016
Published: March 2017
Ruling period: Year ended 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2015

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? | A1: Yes.

Relevant facts and circumstances: The deceased passed away in 20xx. Prior to 20 September 1985, the deceased solely acquired a dwelling as their main residence. The deceased owned no other property. The deceased left a valid will. There was a dispute between the beneficiaries in relation to how the property was to be divided. The dispute was eventually resolved without any legal action having to being taken. A solicitor was then engaged to assist with the application for probate. The relevant documents were sent out shortly thereafter, however, there was a delay with the signing of the documents as one of the beneficiaries was overseas at the time. Probate was granted in the early half of 20xx. The properties title was then transferred into the executor's name. A contract for sale was signed in the 20xx financial year and settlement took place several months later.

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

Reasons for decision: Summary: For a dwelling acquired by the deceased before 20 September 1985, subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) allows a capital gain or capital loss to be disregarded when a capital gains tax (CGT) event happens to a dwelling owned by a taxpayer as trustee of a deceased estate if either of the following applied: n the dwelling is sold within two years of the date of death of the deceased, or n from the date of death until the trustee's ownership interest ends, the dwelling was not used to gain or produce assessable income and it was the main residence of one or more of: n the spouse of the deceased immediately before death; or n an individual who had a right to occupy the dwelling under the deceased's will; or n the taxpayer as a beneficiary if they are disposing of the dwelling as a beneficiary. In this case, the deceased acquired the property prior to 20 September 1985. Following the deceased's death the property passed to the trustee of the deceased's estate. As the conditions of subsection 118-195(1) of the ITAA 1997 have not been satisfied, you can only disregard a capital gain or loss if the Commissioner exercises his discretion to extend the two year period for the disposal of the property. 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. The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion: n the ownership of a dwelling or a will is challenged, n the complexity of a deceased estate delays the completion of administration of the estate, n 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 (eg the taxpayer or a family member has a severe illness or injury), or n settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for reasons outside the beneficiary or trustee's control. In this case, as a result of delays in obtaining probate, the property was not disposed of within two years of the deceased's death. Having considered the particular circumstances of this case, 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.