Private ruling: Deceased estate capital gains
Date of advice: 9 September 2016
Published: October 2016
Ruling period: Year ending 30 June 20ZZ
Date scheme commenced: 1 July 20YY

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 dwelling on the property and allow an extension of time until 30 June 2016? | A1: No

Relevant facts and circumstances: The deceased passed away 20XX The deceased's main residence ('the property') formed part of the deceased's estate. Significant repairs were undertaken on the property. The property was sold 20YY, over 3 years after the deceased's date of death.

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 (or it passed to you as a beneficiary of an 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). 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 In this case, there has been no challenge to the will, the estate was not complex, there were no unforseen or serious personal circumstances that prevented the sale, and the delay in selling the property is not due to circumstances beyond the beneficiary or trustee's control. Examples of where the Commissioner has not exercised the discretion: • property not placed on the market for sale until after 2 years has passed (and no valid reason given for delay) • improvements/renovations carried out to increase market value prior to sale • subdivision undertaken by the executors which is not contemplated or required by the deceased's will • a beneficiary has been allowed to live in the property by the executor but this is not expressly provided for in the will We appreciate your situation in conducting repair work to the property before listing it for sale however the situation is of a different nature to which the Commissioner can exercise his discretion. Having considered the relevant circumstances, the Commissioner will not exercise his discretion and extend the 2 year time limit.