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Edited version of your written advice
Authorisation Number: 1012779169972
Ruling
Subject: CGT - deceased estate - 2 year discretion
Question 1
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 to dd/mm/yyyy?
Answer
Yes
Question 2
Can you disregard any capital gain or loss that arises from the disposal of the property under section 118-195 of the ITAA 1997?
Answer
Yes
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20YY
Relevant facts and circumstances
The deceased died in a month in 20XX
An asset within the deceased estate was a house (the property).
The property was the main residence of the deceased up to the date of their death.
The property has not been used to produce assessable income.
Probate was granted in a month in 20XX.
The deceased had X children. Under the will only X of the children was beneficiary of the estate.
An agreement was reached between the X children of the deceased that the proceeds of the sale of the property would be split equally between them. This agreement was made so the children of the deceased, who were not beneficiaries under the Will, would not contest the Will.
A family deed of arrangement was drawn up to formalise the agreement made between the children of the deceased.
The agreement and the drawing of the family deed of arrangement took X months to complete.
A real estate agent was engaged and the property placed on the market in a month in 20XX.
A contract was signed in a month in 20XX, however this contract fell though in a month in 20XX.
A new real estate agent was appointed after a dispute relating to the forfeited deposit from the first contract.
A second contract was signed in a month in 20XX, however this contract also fell through prior to its 20XX settlement date.
The Executor decided to sell the property privately and a third contract was entered into in a month in 20XX.
The property settled in a month in 20XX.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 118-195(1)
Reasons for decision
Subsection 118-195(1) of the ITAA 1997 allows a trustee of a deceased estate to disregard a capital gain or loss from a dwelling if:
• the property was acquired by the deceased before 20 September 1985, or
• the property was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income, and
• your ownership interest ends within 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances).
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 (eg 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 delay in the disposal of the property was impacted by the process undertaken to come to an agreement with all the children of the deceased in order to stop the will being formally challenged through the courts which would have caused further delays. There were also two failed contracts of sale on the property, which were outside the control of the Executor.
Having considered the particular circumstances of this case, 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.
As a result, you will satisfy all of the conditions contained in section 118-195 of the ITAA 1997. Accordingly, you can disregard any capital gain or loss that arises as a result of the disposal of the property.
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