Private ruling: CGT – deceased estate – Commissioner’s discretion to extend the two year period
Date of advice: 28 November 2017
Published: April 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: P acquired a dwelling before 25 September 1985 (dwelling). P passed away in 2015 (deceased). The dwelling was the deceased’s main residence and was not used to derive rental income. The dwelling was also occupied by the deceased’s child and grandchild for several decades. The Will of the deceased provided that the deceased’s estate be held on trust and the deceased’s child N be permitted to reside in the dwelling for a period not exceeding XX months from the date of the deceased’s death, unless revoked at an earlier time by the child’s consent. The deceased’s Will provided that following the XX month period from the date of the deceased’s passing, the estate of the deceased was to be distributed to the deceased’s children N, M and O in equal shares. The deceased’s children were also executors of the deceased’s estate. A dispute occurred between the deceased’s children in relation to distribution of the estate. The deceased’s grandchild (plaintiff 1) and child (plaintiff 2) initiated separate legal proceedings in late 2015 and the middle of 2016. Orders were made by the court for the first and second legal proceedings in early 2017. These orders provided the executors of the deceased’s estate with authority to list the dwelling for sale and enter into a real estate agreement with an agent. The orders required the plaintiffs in both proceedings to ensure the dwelling was accessible for inspections during the time it was listed for sale and to remove domestic animals from the dwelling while it was being inspected. The executors were required to sell the house with vacant possession before the middle of 2017 and to provide the plaintiffs with adequate notice to vacate the dwelling. Contracts for the sale of the dwelling were signed in early 2017 and settlement of the sale of the dwelling occurred later in 2017.

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. ● The deceased’s Will created a testamentary trust that provided for the deceased’s child and grandchild to continue living in the deceased’s dwelling up to XX months from the date of the deceased’s passing. ● Whilst this trust was in existence, there was a dispute by the deceased’s children in relation to the distribution of the deceased’s estate. ● This dispute resulted in two separate legal actions being initiated by one of the deceased’s children who was also an executor of the deceased’s estate and the deceased’s grandchild. The first legal action was initiated within YY months of the deceased’s passing and the second legal action was initiated within ZZ months of the date of passing of the deceased. ● Court orders were made in early 2017 in relation to both legal proceedings and within a couple of months from the date of these orders, settlement of the sale of the dwelling had occurred. The deceased’s dwelling was sold approximately 2.5 years following the deceased’s passing. The Commissioner accepts that it is appropriate to grant the short extension that you have requested.