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Edited version of your written advice
Authorisation Number: 1051379576787
Date of advice: 6 July 2018
Subject: CGT – deceased estate – Commissioner’s discretion to extend the two year period
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
No.
This ruling applies for the following period
Year ended 30 June 20xx.
The scheme commences on
1 July 20xx.
Relevant facts and circumstances
The Deceased purchased the dwelling after 19 September 1985 (the Dwelling).
The Deceased passed away after a number of years.
The Dwelling was the Deceased’s main residence at the time of their death.
The Dwelling was not used for income producing activities and no income has been received from the Dwelling after the passing of the Deceased.
The Deceased’s spouse (you) was named as executor of the Deceased’s estate.
You are the beneficiary of the Deceased’s Dwelling.
You never lived in the Dwelling.
The youngest child of you and the Deceased was incarcerated at the time of the Deceased’s death.
After the passing of the Deceased and with the incarceration of your child on numerous occasions you suffered various mental and physical health issues. Your child later had a car accident which resulted in permanent hospitalisation.
Approximately 18 months after the Deceased passed away you engaged Lawyers to apply for Probate.
Approximately two years after the Deceased passed away Probate was granted.
Approximately three months after Probate was granted the Dwelling was transferred to you.
You enlisted the help of a Real Estate Agent to sell the Dwelling.
Over four years and four months after the Deceased passed away the Dwelling was placed on the market.
One month later the Dwelling went to auction and sold.
Four years and nine months after the Deceased passed away settlement occurred on the Dwelling.
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
Summary
The Commissioner will not exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time until 9 March 20xx.
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.
In your situation from the death of the deceased you have had some challenges to your ability to act as executor as you suffered various mental and physical health issues as well as having to deal with the constant worry and concern of a child being incarcerated.
These challenges contributed to you not applying for probate for the deceased estate for approximately 18 months after the deceased passed away.
Probate was granted to you approximately two years after the deceased passed away, however it only took three months for you as executor to transfer the property into your name.
Once the property was in your name you once more delayed the selling of the property by not listing the property for sale for approximately two years after it had been transferred to you.
Once the property was listed for sale it was sold and settled in six months’ time.
As you where both the executor of the deceased’s estate and the sole beneficiary of the property the delay in selling the property for prolonged periods of time during the two ownership periods was solely your responsibility.
It is up to the executor to dispose of the deceased’s estate assets in a timely manner. If there was any reason, including medical, for you to not fulfil your role as executor the deceased estate should have been placed in independent administration as soon as possible.
Once the property had been transferred to you as beneficiary it should have been advertised for sale immediately.
As no evidence has been provided to suggest that the deceased’s estate was complex in nature, or an unforeseen or serious circumstance applied to you out of your control for a prolonged period of time the Commissioner will not apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.