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Edited version of your written advice
Authorisation Number: 1051189852870
Date of advice: 14 February 2017
Ruling
Subject: CGT - deceased estate - extension of two year exemption
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 two year period?
Answer
Yes
This ruling applies for the following periods:
Year ending 30 June 2017
The scheme commences on:
1 July 2016
Relevant facts and circumstances
The deceased passed away.
The property situated at was acquired by the deceased.
The deceased used the property as their main residence for the entire ownership period.
The property was never used for income producing purposes.
The Will was challenged.
An agreement was entered into allowing the Will to be submitted for a Grant of Probate.
The Registrar of Probates made an order in relation to the matter and Probate was granted.
The property was placed on the market and a contract of sale was entered into, conditional on Probate being granted.
Original settlement date was XXXX. A number of extensions to the settlement date occurred due to a number of Council and development approval issued.
The property settled.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 118-195
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 two 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 but was not sold within two 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 two 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 the Will was challenged by one of the beneficiaries of the Estate. This delayed the granting of Probate-months after the death of the taxpayer.
Although the property was then marketed and a contract placed within the two year period, there were significant delays in the settlement due to the purchaser requesting a number of extensions to the settlement date due to approval issues.
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.