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Edited version of your written advice
Authorisation Number: 1051387556957
Date of advice: 6 July 2018
Ruling
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
Yes
This ruling applies for the following period
Year ended 30 June 2018
The scheme commences on
1 July 2017
Relevant facts and circumstances
The Deceased inherited the Dwelling after 20 September 1985 (the Dwelling).
The Deceased passed away a number of years later.
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 Dwelling has been in the family for over 100 years and therefore has never been prepared for sale.
The beneficiaries of the Deceased’s estate include the following:
● Sibling 1
● Sibling 2
● Sibling 3 - (Deceased) surviving 3 children; and
● The Deceased’s surviving 3 children
Sibling 1 and Sibling 2 were named executors of the Deceased’s estate (the Executors).
The Deceased had discussed with the Executors the subdivision of the Dwelling for many years before the Deceased passed away.
After the Deceased passed away the Executors decided to maximise the sale potential of the Dwelling by subdividing the Dwelling into two separate lots.
Sibling 1 live in 100 kilometres to the north of the Dwelling and Sibling 2 lives in the same city as the Dwelling.
The Executors are both elderly and have had various medical conditions over a prolonged period of time.
The Executors have had a considerable task clearing the Dwelling and associated property as the Deceased was a hoarder of goods.
Sibling 1 underwent a medical procedure.
The Executors sort the beneficiary’s approval to subdivide the Dwelling.
After the last beneficiary approved of the subdivision the Executors decided to engage relevant Town Planners to do the necessary work for subdividing the Dwelling into two equal lots.
Approximately 15 months after the Deceased passed away first contact was made with the Local City Council (the Council) to discuss the potential subdivision of the Dwelling.
Sibling 2 underwent a medical procedure.
A couple of months after first contact was made with the Council an official application was lodged.
Sibling 2 underwent a medical procedure.
A short time later approval for subdivision was granted by the Council.
Approximately two years after the Deceased passed away the Dwelling went to auction and was sold.
Approximately two years and two months after the Deceased passed away settlement is scheduled to occur 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
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
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.