Private ruling: Commissioner's discretion
Date of advice: 30 March 2016
Published: May 2016
Ruling period: Year ending 30 June 20ZZ | Year ending 30 June 20AA
Date scheme commenced: 1 July 20WW

Ruling: Q1: Will the Commissioner exercise the discretion provided under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two-year main residence exemption period for a further six months? | A1: Yes.

Relevant facts and circumstances: The deceased and their spouse purchased property after September 1985. The deceased's spouse passed away sometime later and the deceased became the sole owner of the property. The property was the deceased's main residence until they relocated to a nursing home in 20XX. The property remained vacant and was not leased. The property continued to be treated as the deceased's main residence. The deceased passed away in 20YY. Probate was granted in 20ZZ. A buyer for the property has been found. The buyer has had to make alternative arrangements to finance the purchase of the property from the estate and this has delayed the completion of the sale.

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 purchased by the deceased and their spouse after September 1985. When the deceased's spouse passed away in 20VV, their ownership interest in the property passed to the deceased. The deceased therefore held sole ownership of the property as a post CGT at the time of their death. The property was treated as the deceased's main residence until they passed away in 20YY. The property was not sold within two years of the deceased's passing. 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 for up to six months after the two year main residence exemption period.