Private ruling: Commissioner’s discretion to extend the two year period – main residence exemption
Date of advice: 8 February 2018
Published: June 2018
Ruling period: Year ended 30 June 2018.
Date scheme commenced: 1 July 2017.

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 acquired a dwelling and occupied it as their main residence. The deceased passed away. Probate was granted a few months later. The deceased estate was comprised of numerous properties and a considerable shareholding. Several properties and the shares have already been sold. The dwelling is the final property to be sold. The deceased was an extreme hoarder and all properties had excessive clutter within them. The deceased also liked to hide valuables within items. The dwelling was the postal address for all correspondence and contained all of the records associated with the estate. Much of the furniture and other chattels from the sold properties have been stored at the dwelling. The main executor lives in one city, while the deceased estate is in another. One of the main beneficiaries had been very ill and passed away during the two years after the deceased’s death. The dwelling has now been sold and settlement has occurred two years and four months after the deceased’s date of 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. | 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 complex nature of the estate, with numerous properties and a considerable shareholding. As the deceased was a hoarder, all properties had excessive clutter within them. The deceased also liked to hide valuables within items so care needed to be taken when removing the clutter from the properties. The executor was not based in the same city and it made dealing with this issue much slower. The dwelling, being the last sold, was also used to store much of the furniture and other chattels from the other properties that were sold. In addition to this, one of the main beneficiaries had been very ill and passed away during the two years after the deceased’s death. This occupied a considerable amount of the Executor’s time. The dwelling has now been sold, with settlement occurring two years and four months after the date of 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 capital loss made on the disposal of the dwelling under subsection 118-195(1) of the ITAA 1997. We accept that the reason for the delay in the disposal of the deceased’s dwelling was due above mentioned issues arising during the two year period after the deceased had passed away. Using the guidelines provided above and having considered the relevant facts of your situation, 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. The Commissioner accepts that it is appropriate to grant the short extension that you have requested.