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Edited version of private advice
Authorisation Number: 1012647679545
Ruling
Subject: CGT - deceased estate
Question and answer
Will the Commissioner exercise 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?
Yes.
This ruling applies for the following periods:
Year ended 30 June 20ZZ
The scheme commenced on:
1 July 20YY
Relevant facts and circumstances
The deceased passed away in the 20XX income year.
Due to legal proceedings, the property was unable to be sold for a significant period of time.
Several offers to purchase the property were then made, but none resulted in the sale of the property for reasons outside of your control.
The final offer to purchase the property was made in 20ZZ income year and settlement occurred later that year.
The property was the main residence of the deceased prior to the date of death, and has not been used to gain or produce assessable income since the date of death, and will not be used as such until the date of sale.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 118-130.
Income Tax Assessment Act 1997 Section 118-195.
Reasons for decision
When a person inherits a deceased person's dwelling, they may be exempt or partially exempt when a capital gains tax (CGT) event happens to it (for example, they sell it).
Where the dwelling is sold within two years of the deceased's death, the trustee or beneficiary can disregard the capital gain or capital loss resulting from the sale.
A trustee or beneficiary of a deceased estate may apply to the Commissioner to grant an extension of the two year time period, where the CGT event happens in the 20YY-ZZ 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 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.
In exercising the discretion the Commissioner will also take into account whether and to what extent the dwelling is used to produce assessable income and for how long the trustee or beneficiary held the ownership interest in the dwelling.
In your case, settlement of sale of the property occurred more than two years after the date the deceased died. The delay was caused firstly by legal proceedings preventing the sale of the property and then by multiple offers for the purchase of the property falling through for reasons outside of your control.
For these reasons, the Commissioner will exercise his discretion to allow an extension to the two year time period.