Private ruling: Capital gains tax - main residence - 2 year exemption
Date of advice: 16 March 2017
Published: August 2017
Ruling period: Year ending 30 June 20ZZ
Date scheme commenced: 1 July 20YY

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and extend the 2 year period until the requested date? | A1: Yes.

Relevant facts and circumstances: The deceased passed away in late 20WW. The property situated in NSW was acquired by the deceased in the early 1950's. The deceased used the property as their main residence for the entire ownership period. The property was never used for income producing purposes. The Trustee was the deceased financial manager from 20VV until their death in 20WW. The Trustee was granted Letters of Administration in mid 20UU. One of the beneficiaries, X lived in the property all their life. They passed away late 20YY. Significant difficulties in communication was experienced due to two of the beneficiaries wished to be communicated via their legal representatives, the third beneficiary was only contactable via mail. Two of the beneficiaries requested to receive the property as part of their entitlements. The property was sold at in late 20YY. The property settled on early 20ZZ.

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

Reasons for decision: Detailed Reasoning - Detailed reasoning: 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 ● deceased acquired dwelling after 20 September 1985 and it was their main residence just prior to death ● 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 before 20 September 1985 but was not sold within 2 years of the deceased's date of death. The Estate 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 this case, probate on the estate was delayed due to disputes and legal action on behalf of the beneficiaries. The Trustee was appointed administrators of the estate but experienced lengthy delays outside of their control. We accept that The Trustees made a genuine effort to administer the estate and sell the property. 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 requested date.