Private ruling: Capital gains for a deceased estate
Date of advice: 13 October 2016
Published: December 2016
Ruling period: Year ending 30 June 20WX
Date scheme commenced: 1 July 20ZZ

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 ('ITAA 1997') in relation to the property and allow an extension of time to dispose of the property? | A1: Yes.

Relevant facts and circumstances: The deceased passed away on DD MM YY. The deceased's main residence ('the property') formed part of the deceased's estate. The property was purchased by the deceased with their spouse in 19XX. The deceased acquired full possession of the property when their spouse passed away in 19XY. The property was not used to produce assessable income at any time since the deceased's death. The beneficiaries and trustees of the property are the deceased's children (A and B). In 20YZ, the beneficiaries entered into an agreement for B to sell their portion of the property to A for $X00,000. There are no formal written agreements other than the Transfer of Land by Direction document regarding this sale and transfer. The Transfer of Land document was lodged with the State Revenue Office on XX August 20ZZ. The State Revenue Office required property valuations take place before the transfer could occur. The Transfer of Land occurred XX October 20ZZ.

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 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 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances). In your case, the deceased acquired an ownership interest in the property in 19XX, and attained full ownership of the property in 19XY when their spouse passed away. The property was the deceased's main residence until they passed away on DD MM YY. The property was not sold within 2 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 2 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. An agreement between A and B was reached in 20YZ, in which B would purchase A's interest in the property. To enact this sale, a Transfer of Land by Direction document was lodged with the State Revenue Office. This was done on XX August 20ZZ, being within 2 years of the deceased's date of death. Settlement of the sale was unexpectedly delayed within the State Revenue Office to XX October 20ZZ. 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 XX October 20ZZ.