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Edited version of private advice
Authorisation Number: 1012655594426
Ruling
Subject: Deceased estate - extension of time
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, until 31 July 2014.
This ruling applies for the following period:
Year ending 30 June 2015
The scheme commences on:
1 July 2014
Relevant facts and circumstances
The deceased owned a property that was their main residence.
The deceased passed away.
The property was inherited by the deceased's children.
The property was listed for sale.
Unsuccessful attempts were made to sell the property.
A sale is currently taking place.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-195.
Reasons for decision
Section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) disregards capital gains and capital losses made by a beneficiary or a trustee of a deceased estate from one of the specified CGT events in relation to a dwelling or the taxpayer's ownership interest in the dwelling. The exemption only applies if certain conditions are satisfied.
A full exemption is available if the dwelling was the deceased's main residence just before the deceased's death, it was not being used to produce assessable income at that time and the individual disposed of the dwelling (e.g. by sale) within two years of the deceased's death, or within a longer period allowed by the Commissioner.
The Commissioner has discretion to extend the two-year time period in relation to CGT events that happened in the 2008/09 income year and later income years. 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, includes the following non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion:
• 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 this case, the deceased purchased the property after September 1985 and treated it as their main residence until their death. You encountered difficulties selling the property within the 2 year exemption period and are now in the process of finalising a sale. The Commissioner will exercise his discretion to apply an extension to the 31 July 2014.