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Edited version of your written advice
Authorisation Number: 1051370660979
Date of advice: 8 May 2018
Ruling
Subject: Commissioner’s discretion to extend the two year period to dispose of an inherited dwelling
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
Income year ending 30 June 20xx.
The scheme commences on
1 July 20xx.
Relevant facts and circumstances
The Deceased acquired the property (the Property) before 20 September 1985 and it was their main residence.
The Deceased passed away after 20 September 1985.
In accordance with the Deceased’s will, Person A and Person B (collectively referred to as “you”) were named as the executors of the Deceased’s estate.
The Deceased’s will, did not contain any provisions for anyone to have a right to reside in the Property.
Probate on the Deceased’s estate was granted more than twelve months after the Deceased passed away.
The Deceased had suffered from a medical condition prior to their passing and the Property had not been maintained while they were alive and was in poor condition when the Deceased passed away.
The Trustees both worked full-time and only had weekends to get the Property in a reasonable condition for sale. Additionally, at that time, they were both going through issues in their personal lives which impacted on their capacity to attend to getting the Property in a saleable condition so that it could be sold.
The Property was put on the market a number of months after probate was granted, and a contract of sale was entered into during the following month.
Settlement on the sale of the Property occurred a number of months after the passing of the two year period following the date of the Deceased’s passing away.
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
Reasons for decision
Commissioner’s discretion under Section 118-195 of the ITAA 1997
Subsection 118-195(1) of the ITAA 1997 provides a capital gains tax (CGT) exemption to a beneficiary or trustee of a deceased estate where a CGT event happens to a dwelling (or an ownership interest in a dwelling) acquired from a deceased estate.
An exemption is provided where the beneficiary or trustee's ownership interest in the dwelling ends within two years of the deceased's death and just before the deceased's death (for pre-CGT dwellings) the dwelling was their main residence.
The Commissioner has discretion to extend the two year time period in subsection 118-195(1) of the ITAA 1997 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.
Application to your situation
We have taken the facts of your situation into consideration when determining whether the Commissioner’s discretion would be exercised extend the two year period and allow you to disregard any capital gain or capital loss made on the disposal of the Property under subsection 118-195(1) of the ITAA 1997.
In your situation settlement on the disposal of the Property occurred a short period after the two year period had passed. The delay in the sale of the property had occurred due to you needing a period of time to put the Property into a saleable condition in addition to personal issues experienced by both of you.
Having considered the relevant facts of your situation, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit to dispose of the Property.