Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1012939892587

Date of advice: 20 January 2016

Ruling

Subject: CGT - deceased estate - Commissioner's discretion 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 until settlement?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 20ZZ.

The scheme commences on

1 July 20YY.

Relevant facts and circumstances

The deceased acquired a dwelling (the dwelling)

The deceased passed away in 20VV.

The dwelling was the deceased's main residence.

The beneficiaries of the estate are the deceased's children, ('A') and ('B')

'A' resided in the dwelling from the deceased's date of death until 20XX.

The deceased's will did not provide a right to occupy the dwelling or a life interest.

The deceased's will appointed, a professional executor ('Trustee') to administer their estate.

'A' has a medical condition. The medical condition limited their ability to maintain the dwelling.

The lack of maintenance caused the dwelling to deteriorate.

The Trustee visited the dwelling on numerous occasions and corresponded with 'A' with a view to assisting 'A' move out of the dwelling so that the dwelling could be sold.

'A' delayed moving out of the dwelling and resisted attempts made by the trustee to facilitate the sale of the dwelling.

An application was made in 20WW to the appropriate state tribunal for an administrator to be appointed for 'A'.

An administrator was appointed and 'A' moved into a nursing home in 20XX.

The Trustee attended the dwelling and determined that work needed to be undertaken to prepare the dwelling for sale.

The Trustee and 'A's administrator were required to organise for 'A's personal belongings and furniture to be removed from the dwelling, which delayed the sale.

The dwelling was prepared for sale and a real estate agent was engaged in 20YY.

The dwelling has been sold and settlement is due in 20ZZ.

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

Explanatory memorandum to the Taxation Laws Amendment Bill (No.9) of 2011 (Cth)

Reasons for decision

A capital gain or capital loss may be 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 and a beneficiary of a deceased estate or you owned it as the trustee of the deceased estate.

For a dwelling acquired by the deceased prior to 20 September 1985, you will be entitled to a full exemption if:

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.

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

The delay in disposing of the dwelling was due to the complexity of the deceased estate which delayed the completion of the administration of the estate.

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 will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit until settlement.


Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).