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Edited version of your private ruling
Authorisation Number: 1012476662767
Ruling
Subject: CGT - deceased estate - discretion to extend two year period
Question and Answer:
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?
Yes.
This ruling applies for the following period:
Year ending 30 June 2013.
The scheme commences on:
1 July 2012.
Relevant facts and circumstances
Relative X purchased a dwelling prior to 20 September 1985.
The dwelling was the main residence of Relative X
Shortly before the death of Relative X in late 2010, Relative Y moved in. There was a verbal agreement between Relative X and Relative Y that, following Relative X's death, Relative Y would be allowed to stay in the dwelling until they were ready to move out.
Following Relative X's death the executor of the estate was unable to exercise their duties and sought the assistance of a lawyer. Further, it was 12 months before Relative Y moved out of the property.
Relative Y experienced significant grief following Relative X's death and as a result the property deteriorated.
The dwelling required repairs to make it presentable for sale. The repair of the dwelling took time.
The sale of the dwelling was finalised more than two years after the death of Relative X.
Reasons for decision
Under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) a capital gain or capital loss can be disregarded on the sale of a dwelling acquired from a deceased estate where:
· the dwelling was acquired by the deceased before 20 September 1985, and
· the dwelling was sold within two years of the deceased's death, or within a longer period allowed by the Commissioner.
In this case, Relative X purchased a property prior to 20 September 1985 and it was their primary residence prior to their death.
The dwelling was sold outside the two year period outlined in subsection 118-195(1) of the ITAA 1997. Therefore, the estate will only be able to disregard the capital gain from the sale of the dwelling if the Commissioner grants an extension to the two year time limit.
The Commissioner has discretion to extend the two year period in subsection 118-195(1) of the ITAA 1997, 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 (e.g. 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 reasons outside the beneficiary or trustee's control.
Application to your circumstances:
In this case, the listing of the dwelling for sale was delayed due to a number of factors:
The executor of the estate was unable to exercise their duties and sought the assistance of a lawyer.
Prior to Relative X's death, Relative Y was allowed to move into the property. Relative Y only moved out of the property 12 months after Relative X's death.
Relative Y experienced significant grief following Relative X's death and as a result the property deteriorated.
The dwelling required significant repairs and it was finally sold more than two years after Relative X's death.
Having considered the relevant facts, the Commissioner will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.
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