Edited version of your written advice

Authorisation Number: 1012817431584

Ruling

Subject: Commissioners discretion to allow an extension of 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 2016.

The scheme commences on

1 July 2015.

Relevant facts and circumstances

The deceased passed away after 20 September 1985.

The deceased's estate included a dwelling (the dwelling) which had been the deceased's principle residence in which they had been residing at the time they passed away.

The dwelling has never been used to produce income.

You (one of the deceased's children) were named as one of the beneficiaries of the deceased's estate.

One of your siblings had resided in the dwelling with the deceased prior to the date they passed away and had continued to live there for a period of time after the deceased had passed away.

A delay in the administration of the deceased's estate occurred due to the will being challenged and Family Provision Claims being lodged by a beneficiary of the deceased's estate.

A Deed of Settlement had been reached around 12 months after the deceased had passed away.

The dwelling was transferred into the names of the beneficiaries about six months later.

The dwelling was vacant from the time one of the beneficiaries had moved out of it and will remain vacant until it is disposed of.

The dwelling was put on the market around 21 months after the deceased had passed away.

A contract of sale has been entered into around a month later, with settlement expected to occur around a month later, being about two years after the date the deceased 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

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 due to the will of the deceased being challenged. This delay prevented you from disposing of the dwelling within the two year time limit.

In determining whether or not to grant an extension the Commissioner is also expected to consider whether and to what extent the dwelling is used to produce assessable income and how long the trustee or beneficiary held it.

Having considered the relevant facts, the Commissioner will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.