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Edited version of your written advice

Authorisation Number: 1013026718437

Date of advice: 31 May 2016

Ruling

Subject: Capital gains tax - deceased estate - Commissioner's discretion - 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 ended 30 June 2016.

The scheme commences on

1 July 2015.

Relevant facts and circumstances

The deceased and their former spouse the property after 20 September 1985.

The deceased passed away in 2012.

The deceased and their former spouse separated more than twenty years ago and the former spouse moved out of the property.

The property contained one dwelling with two units of accommodation (Unit one and Unit two).

The deceased resided in Unit two.

Unit one was rented for a number of years until the property was sold.

The deceased's will was contested by their former spouse and was finalised around three years after the deceased passed away.

The property was sold and settled around three years after the deceased passed away.

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

Summary

The Commissioner will exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension.

Detailed reasoning

The capital gains provisions allow for concessional treatment to be given to a dwelling that was owned by a deceased person if the executors of the deceased person's estate sell that dwelling within two years of the date of death.

Any capital gain or capital loss made on the sale of such a dwelling is disregarded if the dwelling was:

The Commissioner has the discretion to extend the two year period. This extension is generally only granted where the executors are merely arranging the ordinary sale of the dwelling and the cause of the delay is beyond their control (for example, if the will is challenged). There must not be any other factors mitigating against exercising it.

In your case, the delay in disposing of the dwelling was due to the will of the deceased being challenged. This delay prevented you from disposing of the dwelling within the two year time limit.

The Commissioner accepts that it is appropriate to grant the short extension that you have requested.

Further information relevant to your case

Where a property is held in joint names, any capital gain or capital loss will need to be divided according to the ownership interest on the title.

In this case, the deceased owned a 50% interest in the dwelling. However, as the dwelling contained two units of accommodation, their interest was 50% of each unit. Meaning they owned 25% of Unit one and 25% of Unit two.

TD 1999/69 addresses the issue of a dwelling containing more than one unit of accommodation. It states a dwelling containing more than one unit of accommodation may be a main residence if the units of accommodation are used together as one place of residence or abode.

In this case, the dwelling contained two units of accommodation which were used separately to each other, therefore when applying the main residence exemption, only Unit two will be considered the deceased's main residence.

Therefore, the main residence exemption and the Commissioner's discretion to extend the two year period applies only to the deceased's share of their main residence, being their 25% ownership of Unit two.

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