Private ruling: Deceased estate and the extension of the 2 year main residence exemption period
Date of advice: 11 April 2017
Published: September 2017
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the Commissioner exercise his discretion to extend the 2 year main residence exemption for the property under section 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: The property was acquired by the deceased and his/her spouse as joint tenants on before 20 September 1985. The property was used as their main residence from the date of acquisition. The deceased moved into a nursing home in 20XX. Between this date and 20YY his/her spouse also moved into the nursing home. In late 20YY, an informal arrangement was entered into with a family friend to reside in the property as a fixed amount of $AA per month. All proceeds from the renting of the property were placed into the deceased's bank account. This continued to occur after their passing. The deceased's spouse passed away in 20ZZ. His/her portion of the property was passed to the deceased. In 20MM the deceased passed away. Due to a miscommunication the family of the deceased did not notify the executor of his/her passing until early 20SS. In 20SS executor was appointed and probate was granted. Due to the tenant living in the property the executor was not able to take possession of the property when probate was granted. A notice to vacate the property was sent to the tenant with a 30 day notice period. The tenant refused to vacate the property. The executor made numerous attempts to evict the tenant from the property after the 30 day notice period had lapsed. In order to get the property ready for sale the executor requested access to the property from the tenant. The executor gained access in 20SS. This allowed the executor to get a valuation and property inspection. The tenant finally vacated the property in 20SS. The executor immediately took possession of the property. At this time they commenced cleaning and clearing the property to get it ready for sale. While the property was sold in its current condition rubbish needed to be removed from the property. As soon as the property was in a marketable condition a real estate agent was appointed to sell the property in 20SS. The property was advertised and an auction was organised for 20SS. The property was sold at auction and settled in 20SS.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 118-195(1)

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 states that if you are an individual who owns a dwelling in a capacity as trustee of a deceased estate, then you are exempt from tax on any capital gain made on the disposal of the property if: ● The property was acquired by the deceased on or after 20 September 1985 and the property 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; or the property was acquired by the deceased before 20 September 1985; 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 your case, the property will not be sold within the two year time limit. Therefore, you will only be able to disregard the capital gain from the sale of the property if the Commissioner grants an extension to the two year time limit. The Commissioner can exercise his discretion in situations 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 or trustee's control In your case, the delay in disposal was caused by the miscommunication which caused a delay in the family members notifying the executor of the deceased passing, which caused a delay in probate and the extended time it took in getting the tenant to vacate the premises for sale. Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit until 20SS.