Private ruling: Capital gains tax
Date of advice: 6 June 2016
Published: July 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the Commissioner exercise the discretion provided under section 118-195 of the Income Tax Assessment Act 1997 to extend the two-year main residence exemption period until the settlement date of the property? | A1: Yes.

Relevant facts and circumstances: The deceased passed away. One of the estate's assets was the deceased's main residence which had always been their main residence was never used for income producing purposes during their ownership period. The property was also not used to produce assessable income after their death. The property was eventually sold with settlement occurring outside two years of the deceased's death. The sale of the residence was held up due to difficulties in establishing bequest and legatee beneficiaries. In addition, one of the co-executors suffered ill health and subsequently passed away during the administration period.

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 this case, the property was the deceased's main residence until they passed away. It had not been used for income producing purposes but the property was not sold within two years of the deceased's passing. Accordingly, you will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the two 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 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. 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 the settlement date of the property.