Private ruling: Capital gains tax - deceased estate - 2 year discretion
Published: June 2015
Ruling period: Year ended 30 June 2015.
Date scheme commenced: 1 July 2010.

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 in respect of interest A until the date of settlement of its sale? | A1: Yes. | Q2: Will the Commissioner exercise his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time to the two year period in respect of interest B until the date of settlement of its sale? | A2: Yes. | Q3: Will the Commissioner exercise his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time to the two year period in respect of interest C until the date of settlement of its sale? | A3: Yes.

Relevant facts and circumstances: The deceased acquired an interest in a property which consisted of a number of flats (interest A) before 20 September 1985. The deceased acquired an interest in another property (interest B) before 20 September 1985. The deceased acquired a further interest in the interest A property when their spouse passed away after 20 September 1985 (interest C) . The deceased resided in one of the flats in the interest A property following the date their spouse passed away until they also passed away. For the purpose of this ruling, the inherited interest in the deceased's main residence in interest A will be referred to as interest C, and the remaining inherited interest in interest A will be referred to as interest D. The deceased and one of their children passed away on the same date after 20 September 1985. The deceased's will named their deceased child, and another child, as the executors and trustees of their estate. The surviving trustee experienced delays in obtaining the death certificates for both of the deceased which had delayed the obtaining of probate. Probate had been granted by the Supreme Court around eight months after the deceased had passed away. The deceased's estate was complex and there had been considerable dispute within the deceased's family in relation to how the estate was administered. The trustee had also had concerns about winding down a project that the deceased had been involved with at the time of their death, and had sought advice from professionals in relation to this issue. The trustee had been required to travel overseas on a number of occasions to undertake litigation to secure overseas properties for the benefit of the deceased estate's beneficiaries. The trustee had undertaken repairs on each of the flats during the following two years after the deceased had passed away as the flats had become vacant. The trustee had received offers from various members of the deceased's family in relation to the purchasing of the deceased's property; however there had been delays in the confirmation of the offers which had ultimately not been obtained. The accountant assisting the trustee had received threats from one of the beneficiaries and it had been necessary to change accountants, which had caused further delays. An agreement was reached by the family members that the deceased's properties could be sold, but the trustee had difficulties in obtaining an agreement about the manner in which the properties would be sold. A real estate agent was appointed over two years after the deceased had passed away. One of the beneficiaries had commenced legal action against the trustee and when it had been finalised the deceased's properties had been sold at auction, with settlement occurring around ten months later. Documentation has been provided with the private ruling request, and that documentation should be read in conjunction with, and forms part the scheme for the purpose of this private ruling.

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: Commissioner's discretion under Section 118-195 of the ITAA 1997 Subsection 118-195(1) of the ITAA 1997 provides a capital gains tax (CGT) exemption to a beneficiary or trustee of a deceased estate where a CGT event happens to a dwelling (or an ownership interest in a dwelling) acquired from a deceased estate. An exemption is provided where the beneficiary or trustee's ownership interest in the dwelling ends within two years of the deceased's death and just before the deceased's death (for pre-CGT dwellings) the dwelling was their main residence. The Commissioner has discretion to extend the two year time period in subsection 118-195(1) of the ITAA 1997 where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death. This discretion may be exercised in situations such as where: 1. the ownership of a dwelling or a will is challenged; 2. the complexity of a deceased estate delays the completion of administration of the estate; 3. 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 4. 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 your submission, you state that the administration of the estate was difficult and delayed by the extent of the estate, its geographical diversity, and disagreement between the beneficiaries and by legal action undertaken in both Australia and overseas. We have taken the facts of your situation into consideration when determining whether the Commissioner's discretion would be exercised extend the two year period and allow you to disregard any capital gain or capital loss made on the disposal of the unit under subsection 118-195(1) of the ITAA 1997. We accept that the reason for the delay in the disposal of the properties was due complexity of the administration of the estate due to the above mentioned issues arising during the two year period after the deceased had passed away. Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit until the settlement date on the disposal of the properties occurred.