Private ruling: Capital gains tax - deceased estate - two year discretion
Date of advice: 27 April 2017
Published: September 2017
Ruling period: Year ending 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 to DDMMYY? | A1: Yes | Q2: Can you disregard any capital gain or loss that arises from the disposal of the property under subsection 118-195(1) of the ITAA 1997? | A2: Yes

Relevant facts and circumstances: The deceased died on XX March 20XX. The deceased acquired the property prior to 20 September 1985. The property was the deceased main residence from acquisition until their death. Administration of the Estate has been difficult and protracted due to a dispute concerning the conduct of the executor named in the Will. The dispute was ultimately resolved through mediation in August 20XX. Letters of Administration were issued by the Court on XX November 20XX, appointing administrators for the estate. The property transferred to the administrators as legal personal representatives (LPR) on XX January 20XX. The administrators placed the property on the market for sale in February 20XX. The property was sold in March 20XX, with settlement occurring in April 20XX.

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

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 states that if you own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an estate), then you are exempt from tax on any capital gain made on the disposal of the property if: ● the property was acquired by the deceased before 20 September 1985, or ● the property was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income, and ● your ownership interest ends within two years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances). You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed). In this case, the property was purchased by the deceased before 20 September 1985; however the property was not sold within two years of the deceased's date of death. You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the two year time period. The Commissioner can exercise his discretion in situations such as where: ● the ownership of a dwelling or a Will is challenged; ● the complexity of a deceased estate delays the completion of administration of the estate; ● 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 ● settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control Having considered the circumstances and the factors outlined above, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time until DDMMYY.