Private ruling: Capital gains tax – deceased estate – Commissioner’s discretion
Published: July 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 until the specified date? | A1: Yes.

Relevant facts and circumstances: The Deceased and spouse purchased the dwelling after 19 September 1985 (the Dwelling). A number of years later the Deceased’s spouse passed away and as a result the Deceased moved into a nursing home. Approximately 12 months after the Deceased’s spouse passed away the Deceased passed away (the Deceased). One of the Deceased children (you) from their marriage was named executor of the Deceased’s estate. You, as the executor of the Deceased’s estate has made the absence choice in relation to treating the Dwelling as the Deceased’s main residence from the date the Deceased moved into nursing home until the date of the Deceased’s death. The Dwelling was the Deceased’s main residence at the time of their death. The Deceased will named all three of the Deceased’s children from their second marriage as beneficiaries of the Deceased’s estate. The beneficiaries are ● You; ● Sibling B; and ● Sibling C (the beneficiaries). The Deceased also had three children from their first marriage as follows: ● Child A; ● Child B; and ● Child C, which has passed away. Approximately six months after the death of the Deceased you informed the Deceased’s children from their first marriage that their parent had passed away and supplied them with their last will and testament. The Deceased’s will stated that as the children from their first marriage were older and established they wouldn’t need any funds from the Deceased’s estate. A short time later solicitors acting for Child A, advised you that Child A was going to contest the Deceased’s will. A short time later you replied to Child A’s solicitors asking them to advise you of the amount Child A was seeking. In the letter you also advised Child A’s solicitors the valuation of the Dwelling, the value of the shares and the amount of cash held in the Deceased’s bank account. Approximately 12 months after the Deceased passed away you received a second letter from Child A’s solicitor advising Child A would still be contesting the will. About a month later you received an email from Child B informing you they have organised a lawyer for Child A to contest the Deceased’s will. A short time later you received a letter from Child A’s solicitors asking for payment. A short time later you replied to Child A’s solicitor advising them that you are still in the process of obtaining advice and details on the correct way to proceed. A few weeks later you replied to Child A’s solicitor advising them you had discussed this matter with your siblings and have taken some advice. You provided an offer of $XX,XXX to resolve Child A’s claim by way of payment of a single lump sum. Over the next 12 months you and your solicitor and Child A’s solicitor tried to negotiate settlement of the Deceased’s estate. Your solicitor had issues collecting the correct paperwork from banks and other holdings of the Deceased’s estate and as a result of these issues the application for Probate was delayed. Just over two years after the Deceased passed away Probate was granted, however you were advised by your solicitor that you had to wait for six months before proceeding with the sale of the Dwelling and administration of the Deceased’s estate as there was the possibility of another claim being made against the Deceased’s will. A short time later Child A passed away. The next month you received a letter from your solicitor stating Child A’s claim had been settled and that you had agreed to pay their estate a portion of the proceeds from the sale of the Dwelling. The advised six month waiting period was complete and you were able to administer the Deceased’s estate. 10 months after probate was granted the Dwelling was transferred to the beneficiaries. A short time later the administration of the Deceased’s estate was finalised. At the same time you changed the Real Estate Agent in charge of selling the Dwelling. Discussions were then held with the new Real Estate Agent. A few months later you held talks regarding how to sell the Dwelling with the new Real Estate Agent. The next month there was an open home where a reserve price of $XXX,XXX was set. Over the next few weeks there were three more subsequent open home displays. A short time later the Dwelling went to auction and sold. A few weeks later settlement occurred on the Dwelling.

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 case, the delay in disposing of the dwelling was due to one of the deceased’s children from their first marriage contesting the distribution of the will. As there was a threat of legal action over the deceased estates assets the dwelling could not be sold until the matter was resolved. This delay prevented you from disposing of the dwelling within the two year time limit. Once the issued had been resolved and the dwelling had been transferred to the beneficiaries the dwelling was sold within months. The Commissioner accepts that it is appropriate to grant the short extension that you have requested.