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Edited version of your written advice
Authorisation Number: 1013002677902
Date of advice: 28 April 2016
Ruling
Subject: Capital gains tax - deceased estate - Commissioner's discretion - two year period
Question 1
Will the Commissioner, exercise 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 periods:
Year ending 30 June 2016
The scheme commences on:
1 July 2015
Relevant facts and circumstances
The deceased purchased a property after 20 September 1985.
The deceased died on in the 20XX-XX financial year
The property was the main residence of the deceased when they passed away.
In the 20YY-YY financial year, person A, applied for probate in relation to will A.
In the 20YY-YY financial year, person B and C, became aware of the existence of will B.
After becoming aware of will B, person B and C sought legal advice and as a result they:
• applied for grant of probate in relation to will B and
• filed a notice of intention to respond in relation to the application which had been made by person A for a grant of probate in relation to will A on the grounds that the will was not a valid will.
Probate was made in favour of will B, authorising person B and C to be executors of the estate.
Probate was granted in the 20ZZ-ZZ financial year.
Since the deceased's death the property has not produced assessable income.
The property also required repairs to make it ready for sale. This work was carried out following the date probate was granted.
The property was sold and settled in the relevant financial year.
The property sale settled more than two years after the deceased's death.
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 and
Income Tax Assessment Act 1997 subsection 118-195(1).
Reasons for decision
Subsection 118-195(1) of the ITAA 1997 states that if you own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an estate), then you are exempt from tax on any capital gain made on the disposal of the property if:
• the property was acquired by the deceased before 20 September 1985, or
• the property was acquired by the deceased 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, and
• your ownership interest ends within 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances).
You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed).
In this case, the property was purchased by the deceased after 20 September 1985 and was their main residence until they passed away in the 20XX-XX financial year. The property was not sold within 2 years of the deceased's date of death.
You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the 2 year time period.
The Commissioner can exercise his discretion in situations such as where:
• 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
The reason for the delay in selling the property was the result of the will being challenged, which in turn delayed probate being granted.
Having considered the circumstances and the factors outlined above, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time until the sale of the property has settled.