Private ruling: Capital gains and deceased estates
Published: June 2015
Ruling period: Year ending 30 June 2015.
Date scheme commenced: 1 July 2014.

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 passed away late in the relevant financial year. Probate was granted early in the subsequent year. The deceased was retired and lived alone at their main residence property (the property). The property was purchased in the 19XX financial year, and was never used to produce assessable income. The deceased's last Will was made in the 19YY financial year. The deceased had been divorced from their spouse since the 19XX financial year. The deceased was on holidays overseas at the time of their passing. This created delays to due complications in the form of autopsy, repatriation of the body, insurance issues and other bureaucratic measures. Time and efforts were also spent to ensure a more recent Will had not been made. Time was also required to clear the deceased's home, make repairs, and prepare the property for sale. Since the deceased passed away the property has not been rented out or otherwise used to produce assessable income. The property went to auction and contracts for sale of the property were signed late in the 20XX financial year. Settlement date is set for the end of the 20XX financial year - only several weeks after the two year time period allowed.

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

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 allows a trustee or beneficiary of a deceased estate to disregard a capital gain or loss from a dwelling 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). The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion: • 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 (eg 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 reasons outside the beneficiary or trustee's control. In your case, there were delays in administration of the estate due to complications in the form of autopsy, repatriation of the body from overseas, insurance issues and other bureaucratic measures encountered. There was also a delay due to the deceased not appearing to have made a Will more recently than 38 years prior. Having considered the particular circumstances of this case, 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.