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Edited version of your written advice
Authorisation Number: 1051218013109
Date of Advice: 2 June 2017
Ruling
Subject: Capital Gains Tax:- 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?
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 purchased the dwelling prior to 20 September 1985.
Child C was the sole carer of the deceased for several years up until the deceased passed away.
The deceased passed away.
The dwelling was not 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's will named Child A and Child B, as executors of the estate.
Probate was granted X months after the deceased passed away.
In 20XX the executors were invited to attend a meeting of the neighbouring landowners (the group) to discuss selling the properties as a collective to a developer.
Meetings were undertaken over the next X months between the group and the developers which resulted in the group expanding.
Child C resided in the dwelling for a time after the deceased passed away.
Over the next X months the group had several offers which were all withdrawn by the developers.
The decision was made to leave the group and sell the dwelling independently.
The dwelling went to Auction and sold.
The dwelling was settled over X 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 until 23 January 2017.
Detailed reasoning
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 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 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 decided to join your neighbours as a collective and sell your properties to a developer. After a prolonged period of negotiations several offers were made and withdrawn by the developer resulting in the property not being sold within two years of the deceased death.
Once you realised the property was not going to be sold in a reasonable time period you withdrew from the collective and sold the property separately.
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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