Private ruling: Deceased estate and the capital gains tax (CGT) main residence exemption
Date of advice: 23 May 2017
Published: March 2018
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion under section 118-195 of the Income Tax Assessment Act 1997 and allow an extension of time to the two year period? | A1: Yes.

Relevant facts and circumstances: The Deceased passed on 20XX. The Deceased was a resident of another country and resided in that country. You were the trustee and beneficiary under the Will. The Deceased purchased a property in the other country (the Property) prior to 20 September 1985 and lived in it as his/her main residence up until the date he/she passed. The Property was sold at auction on 20XX which was more than 2 years after the Deceased passed. The Property was not used for the purpose of producing assessable income either before the Deceased passed or after. You live in Australia and were unable to travel to the other country to attend to the estate. You placed the Property onto the market as soon as you were able after the granting of Probate and it was sold after the first reasonable offer was made.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-195

Reasons for decision: Summary: Subsection 118-195(1) of the 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 are exempt from tax on any capital gain made on the disposal of the property if: ● the property was acquired by the deceased before 20 September 1985, or ● 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 2 years of the deceased’s death (the Commissioner has discretion to extend this period in certain circumstances). You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed). In your circumstances, the Deceased had purchased an overseas property prior to 20 September 1985 which he/she lived in as his/her main residence. The Deceased passed on 20XX and the Property passed to you under the Will as beneficiary of the estate. You placed the Property onto the market as soon as you were able after the granting of probate and it was sold to the first reasonable offer. The Property sold on 20XX or more than 2 years after the Deceased had passed. You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the 2 year time period. 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 circumstances, you live in Australia and were unable to travel to the other country to attend to the estate. This delay has prevented the disposal of the property occurring within the two year time limit. Having considered the circumstances and the factors outlined above, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time until 20XX.