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Edited version of private advice
Authorisation Number: 1051241327492
Date of advice: 27 June 2017
Ruling
Subject: Capital gains tax - deceased estate - Commissioner's discretion to extend the two year period - main residence exemption
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?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2016.
The scheme commences on
1 July 2015.
Relevant facts and circumstances
The deceased acquired a post CGT residence (the dwelling).
The deceased passed away in 2014 (the deceased).
The dwelling was the main residence of the deceased and was not used for producing assessable income.
The beneficiaries of the deceased estate were the two children of the deceased.
As no final building inspection was obtained by the deceased following the construction of the dwelling and occupation by the deceased, the beneficiaries had to obtain a final inspection following the deceased's passing.
Due to changes in the building standards, the Council required the beneficiaries to rebuild the internal and external stairs of the dwelling to meet the current building standards.
The beneficiaries jointly undertook maintenance work to prepare the dwelling for sale. Minor works undertaken by the two beneficiaries included re-tiling, painting and landscaping.
The beneficiary responsible for jointly undertaking the maintenance and construction works to the stairs had interstate work commitments and this delayed the completion of the works.
The dwelling was listed on the market in in 2015.
A contract to sell the dwelling dated failed to complete due to the purchaser failing to obtain finance.
The dwelling was re-listed immediately for sale after the contract of sale was terminated.
Settlement of the sale of the dwelling occurred in soon after.
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 until 21 April 2016.
Detailed reasoning
The capital gains provisions allow for concessional treatment to be given to a dwelling that was owned by a deceased person if the executors of the deceased person's estate sell that dwelling within two years of the date of death.
Any capital gain or capital loss made on the sale of such a dwelling is disregarded if the dwelling was:
- Acquired by the deceased before 20 September 1985, or
- The deceased's main residence when they died.
The Commissioner has the discretion to extend the two year period. This extension is generally only granted where the executors are merely arranging the ordinary sale of the dwelling and the cause of the delay is beyond their control (for example, if the will is challenged). There must not be any other factors mitigating against exercising it.
The Commissioner accepts that it is appropriate to grant the short extension that you have requested.