Private ruling: Capital gains tax - deceased estate - Commissioner's discretion - two year period
Date of advice: 16 December 2015
Published: February 2016
Ruling period: Income year ending 30 June 2016
Date scheme commenced: The scheme has commenced

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 to dispose of the inherited property? | A1: Yes.

Relevant facts and circumstances: You have provided documentation with this private ruling which forms part of, and should be read in conjunction with, the private ruling. The deceased purchased a block of land located and had built a dwelling on it (the dwelling), in which they had lived in during their entire ownership period commencing before 20 September 1985. The deceased passed away a number of years later. The intention of the Trustees of the deceased's estate was to sell the dwelling within the two year period from the date the deceased passed away. A burst water pipe in the dwelling caused flood damage to the dwelling. The insurance builders would not commence any repairs to the dwelling for a minimum of around three months after the flood to allow for the drying out of the dwelling prior to the flood damage repairs being carried out to allow for the brick work and concrete to dry out, and for the efflorescent to stop coming through the walls. Time was also required for the deceased's belongings, which had been placed in storage before the repairs on the dwelling had commenced, to be returned to the dwelling before settlement by the insurance company and then dispatched by the Trustees, which had created a longer settlement. Once the repairs had been undertaken, the dwelling was put on the market. A contract for the sale of the dwelling was entered into around 22 months after the deceased passed away, with settlement occurring about three months later, around X weeks after the two year period after the deceased had passed away.

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

Reasons for decision: Summary: The Commissioner will exercise his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time until settlement on the disposal of the dwelling occurred. | 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 this case, the delay in the disposal of the property was due to the delay in putting the dwelling on the market because of the flood damage occurring due to the burst water pipe, and the time required for the dwelling to dry out sufficiently so that the necessary repairs could be made to the dwelling. The Commissioner accepts that but for the delay in selling the dwelling due to the flood damage repairs, settlement on the disposal of the dwelling would have occurred within the two year period from the date the deceased passed away. As a result of the delay caused by the flood damage to the dwelling, the sale of the dwelling could not be completed within the two year period after the deceased had passed away and had occurred X days outside the two year period. After reviewing the facts of this situation, the Commissioner accepts that it is appropriate to grant the extension that you have requested.