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Edited version of your written advice
Authorisation Number: 1051199971108
Date of advice: 9 March 2017
Ruling
Subject: Capital gains tax - deceased estate - Commissioner's discretion
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 2017.
The scheme commences on
1 July 2016.
Relevant facts and circumstances
The deceased passed away in July 20XX.
The deceased purchased the dwelling prior to 20 September 1985.
The deceased suffered from a medical condition and was placed in a nursing home a number of years after the dwelling was acquired, where they passed away after a number of years.
A child of the deceased resided in the dwelling when the deceased moved into the nursing home until the dwelling was sold.
The dwelling was not being used for income producing activities and no income has been received from the dwelling after the passing of the deceased.
The dwelling was the deceased main residence at the time of their death.
The deceased will named Child A, Child B, Child C and Child D, as executors and beneficiaries of the estate.
An instruction for the lawyers to apply for a grant of probate was made shortly after the deceased passed away. However, due to ongoing disputes between the executors the lodging of the request for probate was delayed.
Child D appointed their own legal representative to deal with estate matters.
The ongoing disputes between the passing of the deceased and the granting of probate related to the inventory and assets register and the sharing of information and documents.
Probate was granted more than one year after the deceased passed away.
After probate was granted the disputes continued in regard to the sale of the property.
The selection of the real estate agent went to Court around two years after probate was granted and orders were made to appoint an independent agent and to sell the dwelling at auction.
The dwelling was settled over two years after the deceased had 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 of time.
Detailed reasoning
In certain circumstances, section 118-195 of the 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 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 two years of the deceased's death.
The Commissioner has discretion to extend the two year time period 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.
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 exercising the discretion the Commissioner will also take into account whether and to what extent the property is used to produce assessable income and for how long the trustee or beneficiary held the ownership interest in the property.
Whether the Commissioner will exercise his discretion under subsection 118-195(1) of the ITAA 1997 will depend on the facts of each case.
In your case, you were unable to dispose of the property within two years of the deceased's death due to the ongoing disputes and disagreements between the beneficiaries which led to one beneficiary engaging their own legal representation for any correspondence.
Due to the lack of cooperation between the numerous parties there were significant delays in obtaining probate and agreeing on a suitable selling agent which was determined by the courts resulting in the eventual sale of the dwelling.
Having considered the relevant facts, the Commissioner is able to apply his discretion under Section 118-195 of the ITAA 1997 and allow a reasonable extension to the time limit.
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