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Edited version of your written advice
Authorisation Number: 1012813397296
Ruling
Subject: CGT - deceased estate - Commissioner's discretion to extend the two year time limit
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 ending 30 June 2015; and
Year ending 30 June 2016.
The scheme commences on:
1 July 2014.
Relevant facts and circumstances
The deceased acquired the dwelling before 20 September 1985 and passed away a number of years later.
The administration of the deceased estate had been delayed due to the will being challenged. As a result, the matter was not resolved until a Consent Order was handed down by the Supreme Court around twelve months after the deceased had passed away.
The title of the dwelling was transferred into the names of the executors of the deceased's estate a number of months after the Consent Order had been handed down, and was then listed for sale after a further period of a few months had passed.
The dwelling has continued to be on the market, but has not been disposed of as at this point.
A relative of one of the executors is residing rent free in the dwelling.
A number of documents have been provided with the request application, and should be read in conjunction with, and form part of the description of this scheme for the purpose of this private ruling.
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
Reasons for decision
Commissioner's discretion under Section 118-195 of the ITAA 1997
Subsection 118-195(1) of the ITAA 1997 provides a capital gains tax (CGT) exemption to a beneficiary or trustee of a deceased estate where a CGT event happens to a dwelling (or an ownership interest in a dwelling) acquired from a deceased estate.
An exemption is provided where the beneficiary or trustee's ownership interest in the dwelling ends within two years of the deceased's death and just before the deceased's death (for pre-CGT dwellings) the dwelling was their main residence.
The Commissioner has discretion to extend the two year time period in subsection 118-195(1) of the ITAA 1997 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.
In your submission, you state that the delay in disposing of the dwelling was initially due to the challenge to the deceased's will, and that while the dwelling has been on the market for sale and efforts have been made to advertise the dwelling, due to the downturn in the property market in the city where the dwelling is located, the dwelling has not been disposed of at this point.
We have taken the facts of your situation into consideration when determining whether the Commissioner's discretion would be exercised extend the two year period and allow you to disregard any capital gain or capital loss made on the disposal of the dwelling under subsection 118-195(1) of the ITAA 1997.
We accept that the reason for the delay in the disposal of the deceased's dwelling was due to above mentioned issues arising during the two year period after the deceased had passed away.
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 to dispose of the dwelling.