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Edited version of your written advice
Authorisation Number: 1013079640462
Ruling
Subject: CGT - deceased estate - Commissioner's discretion to extend the two year period - main residence exemption
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 a specified date?
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 owned a dwelling that was their main residence.
The deceased passed during the 20XX income year.
There was a delay in obtaining Probate.
The dwelling was listed for sale around 12 months after probate was granted.
The dwelling was rented while listed for sale.
There was limited interest in purchasing the dwelling. An offer to purchase the dwelling was received, and accepted, less than 12 months after the property was listed for sale.
Settlement for the sale of the dwelling will occur around two 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
In certain circumstances, section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the trustee of a deceased estate may disregard an assessable gain or loss made from the disposal of a property that passed to them in their capacity as trustee of a deceased estate.
In 1986, an explanatory memorandum was released which introduced capital gains tax (CGT) with the exemption period of 12 months. This meant that trustees or beneficiaries of a deceased estate had 12 months from the date of the deceased passing away to dispose of an inherited property to be eligible for the exemption. The intention behind this legislation was that the inherited property was to be immediately sold after the date the deceased passed away.
This period was extended to two years by Parliament from 1996 to allow for situations where the trustees or beneficiaries of a deceased estate had difficulty arranging an orderly sale of the deceased's property within the current 12 month period. This extension gave trustees and beneficiaries more time to make appropriate arrangements by extending the period by 12 months.
However, the Commissioner has the power under section 118-195 of the ITAA 1997 to extend the two year period to dispose of an inherited property in relation to CGT events that happened in the 2008-09 income year and later income years in accordance with the explanatory memorandum (EM) to the Bill that added the discretion to section 118-195 of the ITAA 1997, (the Tax Laws Amendment (2011 Measures No 9) Bill 2011). This enables a trustee or beneficiary of a deceased estate to apply to the Commissioner to grant an extension of the two year time period to dispose of the deceased's property, where the CGT event happens in the 2008-09 income year or later income years.
Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example:
• the ownership of a property 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
• The settlement of a contract of sale over the property is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control.
These examples are not exhaustive, but provide guidance on what factors the Commissioner would consider reasonable to exercise his discretion to extend the two year period to dispose of an inherited property.
In your case, it is acknowledged that the property was not disposed of within two years of the deceased's passing, due to limited interest in the property after it was listed for sale. Therefore, the Commissioner accepts that it is appropriate to grant the short extension that you have requested.
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