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Edited version of your written advice
Authorisation Number: 1012920603003
Date of advice: 2 December 2015
Ruling
Subject: Capital gains tax - deceased estate -Commissioners discretion
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 until settlement on the disposal of the dwelling occurred?
Answer:
Yes.
This ruling applies for the following period:
Income year ending 30 June 2016.
The scheme commences on:
Year ended 30 June 2013.
Relevant facts and circumstances
The deceased jointly purchased the property (the dwelling) with their spouse before 20 September 1985.
The deceased resided in the dwelling and it had been their main residence up to the time they passed away many years later after 20 September 1985.
The deceased made a will (Will 1), which outlined the following:
• The deceased's child (Child A) and their grandchild (Grandchild A) were to be appointed as co-executors; and
• The deceased bequeathed their estate as follows:
• X% to Child A and Child A's children,, Grandchild B and Grandchild C
• The remaining X% of the deceased's estate to be distributed to the deceased's grandchildren as follows:
• Y% to Grandchild D
• Z% to Grandchild A; and
• Z% to Grandchild E.
The deceased made another will (Will 2) a number of months after Will 1, which outlined the following:
• the deceased's child (Child B) and Grandchild A were to be appointed as a co-executors of the deceased's estate; and
• the dwelling, with all furniture, fixtures, chattels and household effects was bequeathed to Grandchild A.
The deceased's second will was disputed with legal proceedings commencing shortly after the deceased had passed away.
Probate was granted on Will 1, with probate being granted by the Supreme Court around 16 months after the deceased passed away.
From the date the deceased passed away, the dwelling had been the main residence of Grandchild A and no income was derived from the dwelling.
Child A and the other beneficiaries were aware of Grandchild A's intention to purchase the dwelling, but attempts at negotiation were unsuccessful.
The dispute caused a delay in the listing of the dwelling for sale, while the other properties that were part of the deceased's estate were listed and sold less than two years after the deceased had passed away.
The dwelling was auctioned around 25 months after the deceased passed away, with settlement intended to occur during the following month.
However, settlement could not occur until conditions as outlined in the Court Order were met. Accordingly, settlement on the disposal of the dwelling had been delayed until around two months after the dwelling was auctioned once all of the relevant conditions under the Court Order were met.
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
Summary
The Commissioner will exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time until settlement on the disposal of the dwelling occurred.
Detailed reasoning
The capital gains provisions allow for concessional treatment to be given to a dwelling that was owned by a deceased person if the executors of the deceased person's estate sell that dwelling within two years of the date of death.
Any capital gain or capital loss made on the sale of such a dwelling is disregarded if the dwelling was:
• Acquired by the deceased before 20 September 1985, or
• The deceased's main residence when they died
The Commissioner has the discretion to extend the two year period. This extension is generally only granted where the executors are merely arranging the ordinary sale of the dwelling and the cause of the delay is beyond their control (for example, if the will is challenged). There must not be any other factors mitigating against exercising it.
In this case, the delay in the disposal of the dwelling is due to the legal action arising as a result of the deceased's will being disputed, as disclosed in your private ruling request.
As a result of these delays, and the conditions that had to be met before the settlement on this dwelling could occur, the settlement on the disposal of the dwelling could not be completed within the two year period after the deceased had passed away.
After reviewing the facts of this situation, the Commissioner accepts that it is appropriate to grant the extension that you have requested.