Edited version of your written advice

Authorisation Number: 1013139867921

Date of advice: 16 December 2016

Ruling

Subject: Capital Gain Tax - deceased estate - 2 year exception

Question 1

Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and extend the 2 year period to 12 December 2016?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 201X

Year ending 30 June 201X

The scheme commences on:

01 July 201X

Relevant facts and circumstances

The deceased passed away.

The deceased used the property as their main residence for the entire ownership period.

Property purchased with husband (joint tenants)

Property transferred to deceased (due to divorce)

Property placed on market in preparation for deceased to enter nursing home.

The Will was challenged.

Renunciation of Administration as an executor of the Will - for health reasons.

Conditional contract on property.

Property rented out.

Mediation and settlement of dispute of Will

Termination of original contract

Real Estate appointed replacing previous agent.

Grant of Probate.

Contract signed - with 12 month settlement date.

Settlement of contract

Further mitigating circumstances included

● The death of both parents within a week.

● A dispute over the Will of father of the benefactors

the ill health of several of the executors of the Will of the deceased.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 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, 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 before 20 September 1985 but was not sold within 2 years of the deceased's date of death.

The Estate 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

In this case, there were multiple mitigating circumstances that were outside of executors' control. The death of both parents within a week of each other and the Wills of both parents were contested. The first conditional contract of the house fell through and the second contract settled after a 12 month period. The contract was signed within the two year period, but the 12 month settlement placed the sale outside the two year period. This settled two years and eleven months from date of death.

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.