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Edited version of your written advice
Authorisation Number: 1051178504383
Date of advice: 9 January 2017
Ruling
Subject: Capital gains tax
Question 1
Will the Commissioner exercise discretion under Section 118-195 of the Income Tax Assessment Act 1997 and allow an extension of time to the two year period?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 20ZZ
The scheme commences on:
1 July 20YY
Relevant facts and circumstances
The deceased died 20WW.
The deceased purchased the property post-CGT, which was the main residence for their entire ownership period.
Probate was granted in 20XX. The deceased's X children were the executors of the will and also the beneficiaries.
There were legal disputes between the executors regarding the sale of the property and administration of other assets of the estate.
The inability for the executors to administer the estate resulted in an administrator being appointed by the Relevant Court in 20YY.
The property was sold and settled in 20ZZ.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 section 118-195
Income Tax Assessment Act 1997 subsection 118-195(1)
Reasons for decision
Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that if you own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an estate), then you are exempt from tax on any capital gain made on the disposal of the property 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).
You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed).
You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the 2 year time period.
The Commissioner can exercise discretion in situations such as where:
● 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 (for example, 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 circumstances outside the beneficiary or trustee's control
Application to your circumstances
In this case, there were significant delays in the completion of administration of the estate of the deceased. Disputes between the executors, the complexity of the estate, and the resulting appointment of an administrator, prevented the property from being sold within two years.
Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit until 20ZZ.
As a result of extending the two year time limit, you will satisfy all of the conditions contained in section 118-195 of the ITAA 1997. Therefore, you can disregard any capital gain or loss that arises as a result of the disposal of the property.
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