Private ruling: Capital gains tax – deceased estate – Commissioner’s discretion to extend the two year period – inherited dwelling
Date of advice: 27 February 2018
Published: June 2018
Ruling period: Year ended 30 June 2018.
Date scheme commenced: 1 July 2017.

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 purchased the property (the Dwelling) after 20 September 1985. In 20XX the Deceased passed away. The Dwelling was the Deceased’s main residence at the time of his death. The Dwelling was not used for income producing activities and no income has been received from the Dwelling after the passing of the Deceased. The Deceased passed away intestate. Shortly after the Deceased passed away Person A instructed Solicitor A to act on his behalf in relation to the Deceased’s estate. During the next few months there was correspondence between Solicitor A and Solicitor B who acted for Person B who claimed to be the Deceased’s de facto partner. Person A was not satisfied with the way that Solicitor A were handling the matter so he instructed Solicitors AA to act on his behalf. Solicitors AA sent a letter on Person A’s behalf to Solicitor B. Solicitors AA then received a response from Solicitor B on the same date advising that they were no longer acting for Person B and informing Solicitors AA that they had forwarded our letter to Person B directly. Six months after the Deceased passed away Person B filed a Statement of Claim in the which included applying for a grant of Letters of Administration for the Deceased estate. Person A was named as the defendant. At the same time Solicitor AA received a letter from Solicitor BB confirming that they were acting on behalf of Person B. A little while later a Notice of Appearance was filed by Person A. Over the next 12 months various claims and counter claims were filed and served between the two parties. Approximately 12 months later proceedings were set down in the Court for a five day trial commencing approximately 8 months later. A couple of months later a settlement offer was made by Person A to Person B via their solicitors. Several counter offers and claims were received and made over the next few months with no result. Just before the trial correspondence was made between the Solicitors and the Barristers arranging the Court date The next day the Barristers of both parties corresponded with one another in an attempt to settle the proceedings. Person A made an offer and the offer was accepted by Person B. A few days later a Consent order was made by the Court and the court ordered that a Grant of Letters of Administration of the Estate of the Deceased be made to Person A. The next month Letters of Administration was granted to Person A. Three months later settlement occurred on the sale of the Dwelling.

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 to dispose of the Dwelling. | 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 delay in disposing of the dwelling was due to the complexity of the deceased estate which delayed the completion of the administration of the estate. The Commissioner accepts that it is appropriate to grant the short extension that you have requested.