Private ruling: Capital gains tax – deceased estate – Commissioner’s discretion to extend the two year period
Date of advice: 21 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 acquired a dwelling before 20 September 1985. The dwelling was an investment property. The deceased passed away after 20 September 1985. The dwelling continued to be leased for a number of years after the deceased’s death. The deceased’s surviving spouse who was the sole beneficiary and Administrator of the estate, attended the office of a solicitor (solicitor A) to initiate the administration of the Deceased Estate. The deceased’s spouse sought alternate legal representation from another firm (solicitor B) several months later, due to inaction by solicitor A. Solicitor B requested the Estate’s file from Solicitor A. The file was not received until some months later. Solicitor B attended to preparation of the application for Letters of Administration with Will annexed (the application). The application was complex as the deceased’s Will did not meet the requirements for execution under the Wills Act 1997 (X). Solicitor B engaged specialist Counsel with regard to the application. The deceased’s spouse was required to attempt to contact each of their legally adopted children who are “affected” persons pursuant to Rule 2.09 of the Relevant Court (Administration and Probate) Rules 2014. The application was requisitioned by the Registrar of Probates and the matter was required to go before the Judge in charge of the Probate list. Orders were made by the Court confirming the Court’s satisfaction that the deceased intended the original document to be their Will, despite not meeting the formal requirements necessary to a Will. A Grant of Letter of Administration was issued by the Court. The deceased’s spouse was instructed by Special Counsel not to distribute the assets of the Estate for a short period of time following the issue of the Grant of Probate. Shortly prior to the conclusion of the suggested time period, the deceased’s spouse took immediate steps to market the dwelling. The deceased’s spouse, through an advocate, entered into private negotiations with a neighbouring property owner for the sale of the dwelling. A private sworn valuation of the dwelling was commissioned by the deceased’s spouse for the purposes of the private negotiations. The private negotiations eventually fell several months later at which time the deceased’s spouse sought to engage a real estate agency to list the dwelling. Following discussions with numerous real estate agencies, the deceased’s spouse engaged a real estate agent to list the dwelling for sale. The deceased’s spouse signed an exclusive authority with the real estate agent a short time later. The deceased’s spouse undertook various works to the dwelling in order to prepare it for sale, including the installation of new carpet and furnishings. The dwelling was sold at Auction with settlement occurring less than five years after the deceased’s date of death.

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 the two year period. | 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. In your submission, you state that the delay in disposing of the dwelling was due to numerous factors. An initial delay was caused through the inactivity if the first solicitor engaged to administer the estate. Further delays were caused due to the Will failing to meet the requirements for execution under the Wills Act 1997(X). A specialist counsel was engaged with regard to the application for Letters of Administration. The deceased’s spouse was required to attempt to make contact with each of their legally adopted children. This took a significant amount of time as the deceased’s spouse was estranged from them, and this delayed the lodgement of the Letters of Administration. Due to the complexity of the situation with the adopted children, the application was requisitioned by the registrar of Probates and required to go before the judge in charge of the Probate list. Once orders were made by the Court, a Grant of Letters of Administration was issued. However, the deceased’s spouse was instructed by Special Counsel not to distribute the assets of the Estate for a short period following the issue of the Grant of Probate. This was due to the operation of the former section 91 of the Administration and Probate Act 1958 (X). The former legislation provided that any person may apply to the Court for provision (or further provision) out of an Estate, if he or she can show that the deceased person had a responsibility to provide for their proper maintenance and support. There was a concern that the deceased’s adopted children from whom the deceased’s spouse was estranged, may come forward and issue such a claim. Towards the end of the suggested time period, the deceased’s spouse took steps to get the dwelling sold. He/she entered into private negotiations with the owner of a neighbouring property. Once it was confirmed that this was not going to proceed, He/she immediately engaged the services of a real estate agent. The dwelling was sold at auction a short time later, with settlement occurring less than five years after the date of the deceased’s death. 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. We accept that the reason for the delay in the disposal of the deceased’s dwelling was due above mentioned issues arising during the period after the deceased had passed away. Using the guidelines provided above and having considered the relevant facts of your situation, 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. The Commissioner accepts that it is appropriate to grant the extension that you have requested.