| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private advice
Authorisation Number: 1051590939122
Date of advice: 8 October 2019
Ruling
Subject: Capital gains tax - 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 2020
The scheme commences on:
1 July 2019
Relevant facts and circumstances
The deceased died in XXXX.
The deceased left a will appointing their child to be executor and trustee of the estate.
The dwelling is located at XXX (the dwelling).
The deceased acquired the interest in the property on the date of their spouse's death.
The dwelling had been the deceased's main residence until the date of death.
The dwelling was left vacant from the deceased's death to when it was sold; it was not used to produce assessable income.
Probate was delayed due to the executors work commitments and that they resided interstate.
Probate certificate was granted in XXXX.
Sale of the dwelling was delayed due to the executors work commitments and that they resided interstate.
The dwelling was listed for sale in XXXX.
The sale contract was signed and settlement occurred in XXXX.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-10,
Income Tax Assessment Act 1997 section 118-195 and
Income Tax Assessment Act 1997 subsection 118-195(1)
Reasons for decision
Subsection 118-195(1) ITAA 1997 states that if you own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an estate), then you can disregard a capital gain or loss from a dwelling if:
· the property was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income, AND
· your ownership interest ends within two years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances)
In this case, when the deceased died, the dwelling passed to the trustee of the estate. The dwelling was the deceased's main residence prior to death, and at that time, was not being used to produce assessable income. The dwelling was sold more than two years after the deceased date of death.
Therefore, the capital gain can only be disregarded from the sale of the dwelling if the Commissioner grants an extension to the two year time limit.
Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example:
· the ownership of a property or a will is challenged
· the complexity of a deceased estate delays the completion of administration of the estate
· 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
· the settlement of a contract of sale over the property is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control.
These examples are not exhaustive, but provide guidance on what factors the Commissioner would consider reasonable to exercise his discretion to extend the two year period to dispose of an inherited property.
Whether the Commissioner will exercise his discretion under subsection 118-195(1) of the ITAA 1997 will depend on the facts of each case.
In this case, the delays experienced did not arise from the ownership of the dwelling or will being challenged, or the complexity of the estate. The delay to granting probate and sale of the dwelling arose from the trustee's work commitments and that they resided interstate; this would not be considered unforeseen circumstances or outside of the trustee's control.
Having considered the relevant facts, 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.