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Edited version of your written advice
Authorisation Number: 1051200899339
Date of advice: 13 March 2017
Ruling
Subject: Deceased Estate
Question 1
Will the Commissioner exercise his discretion under subsection 118-195(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two-year limit to disregard a capital gain on the sale of the deceased taxpayers main residence.
Answer
Yes
This ruling applies for the following period:
Period ending 30 June 2017
The scheme commences on:
1 July 2016
Relevant facts and circumstances
A person passed away
The property was jointly purchased pre 1985 with the deceased's spouse. Post 1985 the deceased's spouse passed away giving sole ownership of the property.
The property was the primary place of residence and was not used for the purpose of producing assessable income.
One of three beneficiaries of the Estate, moved into the property to care for the deceased. After the deceased passed away the beneficiary remained in the property for a period of time.
The Executors, sought to prove the Will in a probate case in Court.
A Beneficiary defended the probate case on the basis there was a later Will and at the same time commenced a Family Provision claim.
The Probate case and the Family Provision case were settled by written agreement through mediation.
A beneficiary subsequently sought to resile from the mediation agreement; consequently the other beneficiaries filed a notice of motion seeking enforcement of mediation agreement.
A Notice of Motion was heard, the mediation agreement was enforced and orders were made to appoint an administrator for the Estate
Letters of Administration with Will annexed were subsequently granted to an administrator.
The property was vacated.
The property went to auction.
Settlement occurred.
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)
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.
Detailed reasoning
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 deceased acquired a 50% interest in the property before 20 September 1985 and the remaining 50% interest was acquired after 20 September 1985 and the property was their main residence until they passed away. 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
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.