Private ruling: Capital gains tax – deceased estate – Commissioner’s discretion to extend the two year period – main residence exemption
Date of advice: 21 May 2018
Published: July 2018
Ruling period: Year ended 30 June 20XX.
Date scheme commenced: 1 July 20XX.

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? | A1: Yes.

Relevant facts and circumstances: Z acquired a dwelling after 20 September 1985. Z lived in the dwelling for approximately XX years (the dwelling). Z passed away between 20XX to 20XX (the deceased). The dwelling was the deceased’s main residence. The deceased’s immediate family predeceased the deceased. Within weeks of Z’s passing, you and your spouse carried out an extensive search of the deceased’s dwelling to locate a will. This involved removing belongings from inside the dwelling and external items. You hired a contractor to assist in the removal of the extensive items that the deceased had accumulated. You sought legal advice from your solicitor in 20XX (the solicitors). The solicitors over a XX months period wrote to various solicitors, accountants and banks to determine if a new or updated will existed. The solicitors also advertised to determine if a valid and current will existed. The solicitors also engaged and obtained a report from a genealogist to ascertain the family members dating back to the grandparents of the deceased. This process took X months to complete, with limited success. In late 20XX you became increasing frustrated at the length of time it was taking to administer the deceased’s estate. You engaged a new solicitor to obtain letters of administration through the Supreme Court. The new solicitor instructed you to apply for death certificates for the grandparents of the deceased and all of their children, spouses and grandchildren. You had difficulty in obtaining death certificates as the Department of Births, Death and Marriages would only provide certificates relating to deaths before 1987 to the next of kin. You had to obtain the Birth, Death and Marriage Certificates of a number of known relatives to prove if they were deceased or still living. This information was only released following the issue of a Supreme Court requisition order. As the Department of Births, Deaths and Marriages requested the exact dates of the deaths of your relatives, you had to visit cemeteries to obtain evidence from actual headstones. This was undertaken between 20XX to 20XX. This photographic evidence would be included in affidavit evidence you lodged with the Supreme Court to obtain letters of Administration. As no valid will was recovered you applied for letters of administration in 20XX. The Supreme Court issued a number of requisitions that needed to be responded to. Your solicitor referred the matter to a specialist barrister to respond to these requisitions. You prepared affidavit evidence and attachments in 20XX to 20XX in response to these requisitions. You had to obtain consent from the X first cousins and the executor named in the will, before you could apply for letters of administration. You obtained consent of the executor in 20XX and other beneficiaries in 20XX. Letters of administration were granted by the Supreme Court in 20XX. You and some relatives were made beneficiaries of the deceased’s estate. One beneficiary was disabled and the other two beneficiaries didn’t have the capacity to assist in the administration of the estate, because of their age and ill health. One beneficiary appointed a power of attorney. You had no contact and received no assistance from the other beneficiaries or power of attorney in relation to the administration of the deceased’s estate. In 20XX you engaged a carpenter to carry out minor repairs to the dwelling. You approached a real estate agent in early 20XX to arrange for the sale of the dwelling by public auction. The dwelling was sold in 20XX and settlement of the sale of the dwelling occurred in 20XX.

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 30 June 20XX. | 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. ● The deceased passed away without a valid and current will and you engaged a solicitor within weeks of the deceased’s passing to obtain letters of administration. ● Following the deceased’s passing you were required to search the deceased’s dwelling to locate a current will. This was an extensive process, as you had to remove accumulations within the deceased’s dwelling and engaged a contractor to assist you with the process. ● To obtain letters of administration you had to identify the living and deceased relatives of the deceased, as far back as the grandparents of the deceased. Your solicitor engaged a genealogist and you applied through the Department of Births, Deaths and Marriages for birth and death certificates relating to the relatives of the deceased. Some certificates were released to you following a court order, but you had to visit a number of cemeteries to obtain photographic evidence of relatives who were predeceased. ● You provided affidavit evidence throughout 20XX in response to the Supreme Court requisitions. ● You had to obtain the permission of the executor and the beneficiaries before you could apply for letters of administration. This occurred throughout 20XX and 20XX. ● Minor repairs were carried out to the dwelling to prepare it for sale. You sold the dwelling within a short period following the grant of letters administration. ● The dwelling was sold within X years, X months following the deceased’s passing. The Commissioner accepts that it is appropriate to grant the short extension that you have requested.