Private ruling: CGT - deceased estate - EOT
Date of advice: 26 May 2016
Published: July 2016
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2015

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: No.

Relevant facts and circumstances: The deceased passed away in 199X. Their main residence was purchased prior to 20 September 1985, and was never used to produce assessable income. The deceased's will gave your parent a life interest to reside in the property. Your parent passed away in 201X. Your sibling resided in the property with your parent, and after the passing they refused to allow you to access the property. Your sibling vacated the property in 201X. Since gaining access to the property, you have had a considerable task of clearing rubbish and furniture from the property. This process of clearing and tidying has revealed several significant building issues which you state need rectification to make the property saleable. You have attended to fixing a number of items within the house. You state that there are many elements that must be improved to make the property saleable. You consider these items to be essential. In addition, you consider renovations to relevant rooms will improve the saleability of the property. You have consulted with a number of builders in relation to these renovations, and you are waiting for the quotes to come in. You estimate that the total cost of these repairs to in excess of $100,000. You expect this process of getting the house ready for sale will take six to twelve months. You are hoping to have the property sold within the next 12 months.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-195, and | Income Tax Assessment Act 1997 Section 118-200.

Reasons for decision: Summary: Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example: • 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. These examples are not exhaustive, but provide guidance on what factors the Commissioner would consider reasonable to exercise his discretion to extend the two year period to dispose of an inherited dwelling. Whether the Commissioner will exercise his discretion under subsections 118-195(1) and 118-200(3) will depend on the facts of each case. Examples of reasons considered not to be acceptable for exercising the Commissioner's discretion may include: • waiting for the property market to pick up before selling the house, • delay due to refurbishment of the house to improve the sale price, • inconvenience on the part of the trustee or beneficiary to organise the sale of the house, or • unexplained periods of inactivity by the executor in attending to the administration of the estate. It is considered that the trustee has a choice in the situations described above. Accordingly, the Commissioner would not exercise the discretion under those circumstances. In your case, the deceased's will gave your parent a lifetime interest in the property. Further, your sibling refused to let you access the property for an extra period of time after your parent passed. This is a perfectly acceptable reason to grant an extension of time, and the Commissioner does not dispute this. However, since gaining access to the property you have undertaken to commence major renovations on the property. Whilst we appreciate the condition of the property in relation to your family members belongings, further delays you are encountering in selling the property are due to refurbishments you are undertaking. You estimate you will spend more than $100,000 on these renovations, and the property is not expected to be sold for another 12 months. The Commissioner's discretion is meant to be limited to situations where the owner is effectively prevented from selling the dwelling. Improving the saleability of a property by renovating the dwelling is not a relevant condition for the Commissioner to exercise his discretion. Ultimately, a property can be placed on the market in any condition. Having considered the particular circumstances of this case, the Commissioner is unable to apply his discretion under subsection 118-195(1) of the ITAA 1997 to allow an extension to the two year time limit. Therefore the capital gain made on the disposal of the property will not be able to be disregarded entirely.