Private ruling: Capital gains tax - deceased estate - Commissioner's discretion - two year period
Date of advice: 18 May 2016
Published: June 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 an extension of time to the two year period? | A1: Yes.

Relevant facts and circumstances: The deceased, an overseas resident, passed away after 20 September 1985. The deceased's last Will named you as the executrix (trustee) and beneficiary of their estate. The deceased's estate included dwelling located overseas in which the deceased had resided in throughout their ownership, and which had not been used to produce assessable income. You are an Australian resident for taxation purposes. Probate was granted by the High Court of the relevant country around 11 months after the deceased passed away. The probate was registered with the relevant overseas office a few weeks after it had been granted so that the title of the dwelling could be transferred into your name. The dwelling has a restriction on it which prevents you from disposing of it and you have applied to the relevant overseas department to remove the alienation restriction on the dwelling. You travelled overseas during the relevant income year to attend to the finalising of the deceased's estate and while there had contacted your solicitor in relation to contacting the relevant overseas department about the progress of the removal of the restriction. At this point, the restriction has not been lifted and you cannot dispose of the dwelling. You will dispose of the dwelling as the trustee of the deceased's estate when the restriction has been lifted and will distribute the proceeds to the beneficiary of the estate, being you. Around month 20XX the Commissioner exercised his discretion and allowed an extension of time to the two year period. Since receiving the discretion, the real estate market has fallen in the relevant country and you have reduced the asking price of the dwelling on numerous occasions. You have recently received an offer which you are considering and may counter offer.

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: 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. The Commissioner previously exercised his discretion until around June 2016 to dispose of the deceased dwelling, since that time the property market in the relevant country has been slow and you have continued to attempt to sell the dwelling, reducing the price on numerous occasions. We have taken the facts of your situation into consideration when determining whether the Commissioner's discretion would be exercised extend the two year period and allow you to disregard any capital gain or capital loss made on the disposal of the dwelling under subsection 118-195(1) of the ITAA 1997. After considering the facts of your situation, the Commissioner will extend his discretion under subsection 118-195(1) of the ITAA 1997 and allow a further extension to the two year time period..