Edited version of private advice

Authorisation Number: 1012679488678

Ruling

Subject: Capital gains tax - deceased estate - Commissioner's discretion

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?

No

This ruling applies for the following period

Year ended 30 June 2015

The scheme commences on

1 July 2014

Relevant facts and circumstances

The deceased passed away on a date.

The deceased owned land and built a dwelling post September 1985.

The dwelling was the deceased's main residence just before their death.

The will was challenged by a sibling of the deceased and then decided not to proceed a short time later.

You instructed a lawyer to apply for the Grant of Probate to the estate.

The will was sent to you to be certified.

Probate was successfully granted.

The property is situated in another state/territory of Australia which is a long distance by plane to where you live.

You placed the property on the market for sale and a contract and settlement occurred a short time later (more than 2 years after the deceased's death).

The reason why you delayed placing the property on the market was because of your emotional decision in deciding whether to sell the property or not. When the property was recently broken into you then decided to sell it.

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

A capital gain or capital loss is disregarded under section 118-195 of the ITAA 1997 where a capital gains tax event happens to a dwelling if it passed to you as an individual beneficiary of a deceased estate or you owned it as the trustee of the deceased estate.

The availability of the exemption is dependent upon:

• who occupied the dwelling after the date of the deceased's death, or

• whether the dwelling was disposed of within two years of the date of the deceased's death.

For a dwelling acquired by the deceased, you will be entitled to a full exemption if:

• the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of the following relevant individuals:

• the spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased)

• an individual who had a right to occupy the dwelling under the deceased's will, or

• an individual beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary, or

• your ownership interest ends within two years of the deceased's death.

In your case, when the deceased died, the dwelling passed to you. The dwelling was the deceased's main residence prior to death, and at that time, was not being used to produce assessable income. However, the dwelling was not occupied by a relevant individual after the deceased's death and therefore this basis of exemption is not available.

Subsection 118-130(3) of the ITAA 1997 provides that where the sale or other disposal of the dwelling proceeds under a contract, the ownership interest ends at the time of settlement of the contract of sale and not at the time of entering the contract.

The dwelling sale settled more than two years after the deceased's death, therefore, the alternative basis of exemption is also not satisfied.

However, subsection 118-195(1) of the ITAA 1997 confers on the Commissioner discretion to extend the two year exemption period, thus this alternative basis of exemption in the provision may apply.

The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion:

• 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 reasons outside the beneficiary or trustee's control.

In your case, the challenge to the will was not a lengthy process as it was challenged and then application for the granting of probate was only X weeks later. Furthermore, the estate was not complex, there were no unforseen or serious personal circumstances that arose during the period, and the settlement of the sale contract was not delayed due to circumstances beyond your control.

While we acknowledge that the death of a family member can be a very emotional time for family members, the circumstances of this case are as such that the Commissioner cannot exercise his discretion to extend the two year time period.

In determining whether or not to grant an extension the Commissioner is also expected to consider whether and to what extent the dwelling is used to produce assessable income and how long the trustee or beneficiary held it.

Having considered the relevant facts, the Commissioner is not able to 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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