Private ruling: CGT - deceased estate - extension of time to the two year period
Published: April 2014
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Question and answer | Will the Commissioner exercise 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? | No.

Relevant facts and circumstances: The deceased passed away in 2012. The property in question was the main residence of the deceased prior to the date of death. Immediately following the deceased's death, due to factors outside of your control, the property could not be dealt with in any way. Initially the beneficiaries decided to retain ownership of the property, however, later decided to sell it. You determined that you would be realising the best value of the property by obtaining development approval. The development application is still in progress. It is expected that it will take some time for development approval to be granted, and then arranging the sale will also take time. Both you and the beneficiaries have experienced difficult personal circumstances in the period since the deceased passed away.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-130. | Income Tax Assessment Act 1997 Section 118-195.

Reasons for decision: Summary: When a person inherits a deceased person's dwelling, they may be exempt or partially exempt when a capital gains tax (CGT) event happens to it (for example, they sell it). Where the dwelling is sold within two years of the deceased's death, the trustee or beneficiary can disregard the capital gain or capital loss resulting from the sale. A trustee or beneficiary of a deceased estate may apply to the Commissioner to grant an extension of the two year time period, where the CGT event happens in the 2008-09 income year or later income years. Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example: • 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 exercising the discretion the Commissioner will also take into account whether and to what extent the dwelling is used to produce assessable income and for how long the trustee or beneficiary held the ownership interest in the dwelling. In your case, the initial delay was caused by factors outside of your control and the difficult personal circumstances resulting from the deceased's death. However, the more recent delay is due directly to a decision made by you as the executor to undertake to obtain development approval to significantly increase the value of the property while seeking to obtain an exemption from any capital gains tax that you would otherwise be liable for. While the Commissioner acknowledges that the initial delay was outside of your control, the more recent delay is not outside of your control and is directly due to you taking steps to significantly increase the value of the property, and is a significant period of time of almost two years. It is for this reason that the Commissioner will not exercise his discretion to allow an extension to the two year time period.