Private ruling: Capital gains tax - deceased estate - Commissioner's discretion
Date of advice: 9 March 2017
Published: August 2017
Ruling period: Year ended 30 June 2017.
Date scheme commenced: XX June 20XX

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: A passed away in 20XX. A acquired the property before 20 September 1985. The property was used as A's main residence from the date of purchase until their death. Probate of the will of A was granted to B and C. The will left the property to B and C as tenants in common in equal shares. C asserted that C and B had come to an agreement that C would purchase B's half share in the property for a particular price. B asserted that there was no agreement between them. B commenced proceedings in the Relevant Court to have C removed as an executor of the estate. C then cross claimed for specific performance of the alleged agreement for sale. B and C attempted to mediate the dispute in 20XX but could not come to an agreement. The dispute was set down to be heard by the Relevant Court in 20XX. Further negotiations to settle the dispute were successful and recorded in a settlement deed. It was agreed that B would forego their interest in the property in return for a monetary payment from C. The property was transferred from B and C as executors of the estate to C. C has lived in the property since A's death. The property has never been income producing.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-195

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 have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed). You will only be able to disregard the capital gain from the transfer 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 Having considered the circumstances and the factors outlined above, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time until 20XX.