Private ruling: Capital gains tax – deceased estate – Commissioner’s discretion
Date of advice: 4 January 2018
Published: May 2018
Ruling period: Year ended 30 June 2016.
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 until the specified period? | A1: Yes.

Relevant facts and circumstances: The deceased acquired a dwelling in joint names with their spouse. They occupied the dwelling as their main residence and resided there until their deaths. Their relative also lived in the dwelling. The dwelling was never rented out. Due to a family dispute, the dwelling was transferred into the deceased’s spouse’s name. Their spouse passed away, leaving their ownership interest in the dwelling to the deceased. Probate was granted for the spouse. The deceased was the sole beneficiary of their spouse’s estate. The title was not transferred into the deceased name. The deceased passed away some years later. Probate was delayed as the title for the dwelling was still in their late spouse’s name. Further delays were caused due to their relative’s (an executor and a beneficiary under the deceased’s Will) health issues which hindered them attending meetings with solicitors to sign the necessary documentation. Once the title was transferred into the deceased’s name, probate for the deceased was granted. The dwelling was then sold and settlement occurred two years and four months after the deceased 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 until the specified 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 the delay in obtaining probate. This situation arose because when the deceased died, the title to the dwelling was still in the name of their late spouse. However, the deceased was the sole beneficiary named in their spouse’s Will, and probate for their spouse had been granted, therefore the deceased was presently entitled to the dwelling. Delays were also caused due to the health issues suffered by their relative, which hindered them being able to attend meetings with solicitors to sign the necessary documentation. Once the title was transferred into the deceased name and probate for the deceased was granted, the dwelling was sold with settlement occurring less than three years after the deceased’s death. We have taken the facts of your situation into consideration when determining whether the Commissioner’s discretion would be exercised to extend the two year period and allow you to disregard any capital gain or loss made on the disposal of the dwelling under subsection 118-195(1) of the ITAA 1997. We accept the reasons for the delay in the disposal of the deceased’s dwelling was due to the above mentioned issues arising during the two year period after the deceased had passed away. A significant portion of the two years had passed by the time probate was granted. The Commissioner accepts that it is appropriate to grant the short extension that you have requested.