Private ruling: CGT - Deceased Estate - Main Residence Exemption – Commissioner’s two year discretion
Date of advice: 5 August 2016
Published: September 2016
Ruling period: Period ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the Commissioner exercise his discretion to extend the time period in subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) where the trustee or beneficiary of a deceased estate’s ownership interest ends after two years from the deceased’s death? | A1: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The deceased died on a date in 201X. The estate included the deceased’s main residence, an apartment. The dwelling was never used for income producing purposes. Probate was granted on a date in 201X. The will was challenged by the relatives of the deceased. Mediation between the parties was undertaken 201Y but was unsuccessful. Court proceedings were issued on a date in 201Y. The dispute was settled at a judicial settlement conference on a date in 201Y. The property was successfully auctioned on a date in 201Z and settlement took place a date in 201Z, shortly after the end of the allowed two year period.

Relevant legislative provisions: Subdivision 115-A of the Income Tax Assessment Act 1997 Section 118-195 of the Income Tax Assessment Act 1997 | Section 118-200 of the Income Tax Assessment Act 1997 | Explanatory memorandum to the Taxation Laws Amendment Bill (No.9) of 2011 (Cth)

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 allows a trustee of a deceased estate to disregard a capital gain or loss from a dwelling that a deceased person acquired after 20 September 1985 if: ● the dwelling was the deceased’s main residence at the time of death and not at that time being used to produce assessable income; and ● your ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner. In your case, the dwelling was the deceased’s main residence just before their death. Although your ownership interest in the dwelling did not end within two years after the date of death, in view of your particular circumstances the Commissioner will exercise his discretion to extend the two year exemption period until 30 June 2016. The sale of the property will therefore not be subject to CGT. The Explanatory Memorandum for the Tax Laws Amendment (2011 Measures No. 9) Act 2012 explains the Commissioner would be expected to exercise discretion (in sections 118-195 and 118-200) 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. These examples are not exhaustive. In exercising this discretion, the Commissioner is expected to consider whether and to what extent the dwelling is used to produce assessable income and the period that the trustee or beneficiary held the ownership interest in the dwelling. | Detailed Reasoning - Application of Commissioner’s discretion in your case: In your case, following the guidance in the Explanatory Memorandum, the Commissioner will exercise his discretion under section 185-195 of the ITAA 1997 on the grounds that the sale of the dwelling within the two year period was prevented by the will being challenged. When the legal dispute was settled, you acted quickly to sell the property. In addition, the property was never used to produce assessable income, and the two year period was exceeded by a very short time.