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Edited version of your written advice
Authorisation Number: 1012883045549
Date of advice: 23 September 2015
Ruling
Subject: Extension of time
Question
Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two year time period to dispose of the dwelling?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2016
The scheme commenced on
1 July 20YY
Relevant facts
The taxpayer died in 20XX.
Probate of the Will of the deceased was granted to the executors in 20YY.
The deceased's principal place of residence was sold in 20YY.
The property had not been used to produce any income during this time and remained unoccupied until sold.
Delays in obtaining probate of the will and making the subsequent sale of the residence was caused by the will being challenged in the courts. These legal actions commenced in 20XX and were resolved in 20YY.
Additionally, ill health of a trustee of the estate has hindered the progress to resolve the deceased's estate.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 118-195(1)
Reasons for decision
As per subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling or your ownership interest in it is disregarded if:
(a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and
(b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied.
Beneficiary or trustee of deceased estate acquiring interest | |||
Item |
One of these items is satisfied |
And also one of these items | |
1 |
the deceased *acquired the *ownership interest 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 |
your *ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner | |
2 |
the deceased *acquired the *ownership interest before 20 September 1985 |
the *dwelling was, from the deceased's death until your *ownership interest ends, the main residence of one or more of: | |
|
|
(a) |
the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or |
|
|
(b) |
an individual who had a right to occupy the dwelling under the deceased's will; or |
|
|
(c) |
if the *CGT event was brought about by the individual to whom the *ownership interest *passed as a beneficiary - that individual |
In this case, when the deceased died the property passed to the legal personal representative. The property was not used to produce assessable income and it was their main residence just before their death.
You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period in which you can dispose of the property.
The following is a 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 (eg 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 reasons outside the beneficiary or trustee's control.
In determining whether or not to grant an extension the Commissioner is 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.
In this case, the delay was caused by the deceased's will being challenged in the courts. This prevented the trustee from disposing of the property within the two year time limit. The property was never used to produce assessable income and was held by the trustee for approximately three years which is not considered an excessive period given the legal actions involved.
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.
As a result of extending the two year time limit, you will satisfy all of the conditions contained in section 118-195 of the ITAA. Accordingly, you can disregard any capital gain or loss that arises as a result of the disposal of the property.