Edited version of your written advice

Authorisation Number: 1051462723496

Date of advice: 05 December 2018

Ruling

Subject: The Commissioner’s discretion to extend the two year time limit to dispose of a dwelling

Question

Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and extend the two year period?

Answer

No

This ruling applies for the following period:

Year ended 30 June 2018

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The deceased passed away more than two years ago

The deceased owned a property.

A few years after the deceased’s passing, you engaged the services of a law firm to act on the probate application and estate administration of the deceased’s estate.

Your solicitor requested the deceased’s solicitor to release the deceased’s will, land title and other documents. The deceased’s solicitor did not hand over the documents.

You contacted a real estate agent to facilitate the sale of the dwelling.

Later, the Court granted probate for you to administer the estate.

You received a building notice from the council saying that a number of structures on the property did not have development approval or building permit. The council ordered that you demolish or obtain retrospective approval for those unapproved structures on site.

The property was subsequently withdrawn from the market.

The original title was discovered.

You relisted the property and subsequently removed it from the market again.

You moved into the dwelling shortly after selling your own property.

The title of the dwelling was transferred in your name not long after lodgement date.

You engaged the services of engineers and surveyors to apply for a building permit. The surveyors issued a Final Inspection Certificate signing off all the structures except for a small amount of plumbing works.

The council received your building application. However, they did not issue the building permit due to issues not completed.

You relisted the property in the market.

The dwelling was sold and settled under contract.

The purchasers took on the responsibility to finish the issues and obtain the building permit.

The dwelling has not been used to generate income.

The dwelling was the main residence of the deceased.

The dwelling was your main residence for a number of years.

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 not exercise his discretion under subsection 118-195(1) of the Income TaxAssessment Act 1997 (ITAA 1997) and allow an extension of time.

You may be eligible to apply partial exemption as you occupied the dwelling as a beneficiary under the deceased’s will.

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 this case the dwelling was sold five years after the deceased passed away. We accept that your circumstances surrounding probate and estate administration delayed the disposal of the dwelling. However, while the dwelling was listed on the market for sale and the title of the dwelling was being transferred in your name; you concurrently sold your own property. You took the dwelling off the market and treated this as your main residence. It is considered that taking the dwelling off the market and selling your own residence before moving into the dwelling yourself did not cause a delay beyond your control in disposing the dwelling.

Although the conditions under 118-195 for a full exemption are not met, a partial exemption may apply.

Partial main residence exemption

Section 118-200 of the ITAA allows for a partial exemption (or no exemption) if:

(a) you are an individual and your ownership interest in a dwelling passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and

(b) section 118-195 of the ITAA 1997 does not apply.

You calculate your capital gain or capital loss using the formula:

Capital gain or capita loss amount x Non-main residence days

Total days

The capital gain or capital loss is the amount made from the disposal of the dwelling (before applying any main residence exemption).

The non-main residence days is the sum of:

(a) if the deceased acquired the ownership interest on or after 20 September 1985 – the number of days in the deceased’s ownership period when the dwelling was not the deceased’s main residence; and

(b) the number of days in the period from the death until your ownership interest ends when the dwelling was not the main residence of one of the following:

- a person who was the spouse of the deceased (except a spouse who was permanently separated from the deceased)

- an individual who had a right to occupy the dwelling under the deceased’s will, or

- you, as a beneficiary, if you disposed of the dwelling as a beneficiary.

Total days is:

(a) if the deceased acquired the ownership interest before 20 September 1985, the number of days from the deceased’s death until you disposed of your ownership interest; or

(b) if the deceased acquired the ownership interest on or after 20 September 1985 – the number of days in the period from the acquisition of the dwelling by the deceased until you disposed of your ownership interest.