Edited version of your written advice

Authorisation Number: 1051187711274

Date of advice: 9 February 2017

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) and allow an extension of time to the two year period until DDMMYY?

Answer

Yes

This ruling applies for the following period(s)

Year ended 30 June 2017.

The scheme commences on

1 July 2016.

Relevant facts and circumstances

The deceased purchased the residential property (the dwelling).

The deceased passed away on the sometime during 200X.

The dwelling was the deceased's main residence at the time of their death.

The dwelling was not being used for income producing activities and no income has been received from the dwelling after the passing of the deceased.

The deceased Will named A, the deceased's child and a beneficiary of the Will, and B as executors.

X, the deceased child and beneficiary of the Will, engaged legal representation to correspond with A regarding their obligations as executor pursuant to the Will.

X's legal representatives engaged in communications with A and their accountants from 200X.

Communications between X and A followed regarding A applying for probate.

A failed to apply for probate.

X's legal representatives ceased to act on X's behalf on or about 20AAand advised X to proceed with a litigation lawyer.

X engaged new legal representatives in early 20AA to act on the matter.

X's legal representatives wrote to A in mid-20BB asking A to renounce the executorship and to provide the original will within 14 days and no response was received.

X's legal representatives wrote to A in mid-20BB informing A in part that if they did not receive A's renunciation within the next 7 days proceedings would be commenced against A.

No response was received.

X commenced legal proceedings to be named administrator of the estate in late 20BB.

The matter went to trial in early 20CC.

X was named administrator in 20CC.

X obtained a variety of orders against A after becoming administrator, including that A was a trespasser with respect to the property.

The dwelling was sold as soon as possible, after the settlement of all litigation.

The dwelling was sold in 20DD and settlement occurred on the 20DD.

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

Income Tax Assessment Act 1997 subsection 118-195(1)

Anti-avoidance rules

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 DDMMYY.

Detailed reasoning

In certain circumstances, section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the trustee of a deceased estate may disregard an assessable gain or loss made from the disposal of a property that passed to them in their capacity as trustee of a deceased estate 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 the two year time period 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.

These examples are not exhaustive, but provide guidance on what factors the Commissioner would consider reasonable to exercise his discretion to extend the two year period to dispose of an inherited property.

In exercising the discretion the Commissioner will also take into account whether and to what extent the property is used to produce assessable income and for how long the trustee or beneficiary held the ownership interest in the property.

Whether the Commissioner will exercise his discretion under subsection 118-195(1) of the ITAA 1997 will depend on the facts of each case.

In this case, it is acknowledged that the property was not disposed of within 2 years of the deceased's passing due to the incompetence of the nominated executor/s and hence the time it took for you to be named administrator therefore the Commissioner accepts that it is appropriate to grant the short extension that you have requested.

ATO view documents

Guide to Capital Gains Tax Nat 4151

Other references (non ATO view)

Explanatory memorandum to the Taxation Laws Amendment Bill (No.9) of 2011 (Cth)

Explanatory memorandum to the Taxation Laws Amendment Bill (No.3) of 1997 (Cth)

Other relevant comments

Extract from 2011 EM:

In exercising this discretion, the Commissioner is expected to consider whether and to what extent the dwelling is used to produce assessable income and the period that the trustee or beneficiary held the ownership interest in the dwelling.

Extract from 1997 EM:

5.16 Beneficiaries and trustees of deceased estates may have difficulty arranging the orderly sale of the deceased's principal residence within the current 12 month period. These amendments will give beneficiaries and trustees more time to make appropriate arrangements by extending the current time limit by 12 months. [Division 1 of Part 1