The ATO confirmed that one of the circumstances in which an extension may be granted is where the administration of a deceased estate had been delayed due to the Will being challenged, and a Family Provision Claim being lodged by one of the beneficiaries.
When will the Tax Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (“ITAA 1997”) to allow an extension of time to the two year period for a capital gain you make from disposing of a dwelling to be disregarded?
In a recent Private Binding Ruling (Authorisation Number: 1012821608451), the ATO confirmed that one of the circumstances in which an extension may be granted is where the administration of a deceased estate had been delayed due to the Will being challenged, and a Family Provision Claim being lodged by one of the beneficiaries.
The dwelling in question had been acquired by the deceased before 20 September 1985, and the deceased had resided in the dwelling for a number of years until the deceased moved out to go into supported accommodation and subsequently passed away a number of years later. The dwelling had been rented out after the deceased had moved out of it, and had continued to be rented out for a number of years.
Therefore, the only basis available in order for the concession under subsection 118-195(1) to apply to a disposal of the dwelling by the trustee of the deceased estate was for the dwelling to be disposed of within 2 years of the deceased’s death, or within a longer period allowed by the Commissioner.
Probate had been applied for by the trustees of the deceased estate around four months after the deceased had passed away. However, the administration of the estate was delayed due to the Will being challenged, and a Family Provision Claim being lodged by one of the beneficiaries nine months after the date of death. Negotiations resulted in a settlement being reached, with Supreme Court orders being handed down two months later. The dwelling had to be disposed of pursuant to, and the proceeds divided in accordance with, those orders.
As a result of all this, settlement on the disposal of the dwelling occurred about 26 months after the deceased had passed away – outside the usual 2 year period for the concession to apply.
In their Ruling, the ATO provided guidance as to the circumstances in which an extension may be granted, such as where:
- the ownership of a dwelling 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
- settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary’s or trustee’s control.
Given the circumstances at hand, the ATO determined that the Commissioner would apply his discretion under subsection 118-195(1) of the ITAA 1997 and allowed an extension to the two year time limit until settlement occurred on the disposal of the dwelling.
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Brian Hor
Special Counsel – Estate Planning & Superannuation
Townsends Business & Corporate Lawyers
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Twitter: @TownsendsLaw
brian[AT]townsendslaw.com.au
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