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Edited version of your written advice
Authorisation Number: 1012832146806
Date of advice: 30 June 2015
Ruling
Subject: Requesting the Commissioner to extend the two year period
Question
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?
Answer
Yes.
This ruling applies for the following period
Year ending 30 June 2016.
The scheme commences on
1 July 2015.
Relevant facts and circumstances
The deceased acquired the dwelling before 20 September 1985.
The deceased passed away after 20 September 1985.
The dwelling was rented out for a number of months after the deceased had passed away to assist with the expenses incurred in relation to the deceased's funeral given that the deceased estate had insufficient funds to cover the funeral costs.
The dwelling had extensive damage which were covered by an insurance policy.
A builder was appointed to oversee the repairs. However, the dwelling needed to dry out before the repairs could commence, which took a number of months. The repair work commenced over a year after the deceased had passed away and continued for a number of months.
The dwelling was put on the market and a contract of sale has been signed, with settlement to occur more than two years after the deceased had passed away, by a few weeks.
The Trustee had no prior knowledge of how the capital gains tax provisions applied to deceased estates or exemption applicable to inherited dwellings disposed of within two years of the deceased passing away.
The real estate agent engaged by the Trustee had not advised them of the CGT implications of disposing of the property.
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
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 delay in disposing of the dwelling was due to the repairs required to put the property in a saleable condition. The delay caused by the repairing of the dwelling due to damage had prevented the dwelling from being disposed of within the two year period.
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 dwelling under subsection 118-195(1) of the ITAA 1997.
We accept that the reason for the delay in the disposal of the deceased's dwelling was due above mentioned issues arising during the two year period after the deceased had passed away and the complexity of the deceased estate.
After considering the facts of your situation, the Commissioner will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year period.
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