Private ruling: Commissioner's Discretion for 2 year main residence exemption
Date of advice: 13 April 2017
Published: September 2017
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA1997) in relation to the property? | A1: Yes.

Relevant facts and circumstances: The deceased acquired the property in 19AA. From the time that he/she acquired the property until his/her death it was his/her main residence. The deceased passed away in 20BB. Between the time that the deceased passed and the property was sold, the property remained vacant. The deceased had made a Will dated 20CC (the 20CC Will). It named Child A as sole executor. Child A assisted the deceased with his/her personal and financial affairs prior to his/her death and held the original copy of the 20CC Will. The deceased had made another Will previously, on 20DD (the 20DD Will). The 20DD Will the deceased's Child B was the sole executor and a beneficiary. Neither Child A nor Child B held an original copy of the 20DD Will. In 20EE Child C engaged lawyers and wrote to Child A to challenge the validity of the 20CC Will on the grounds that the deceased lacked the testamentary capacity to make that Will. In 20EE Child A responded that she/he had become aware that the deceased made the 20DD Will and proposed that the parties meet with a view to resolving the matter. Child A located a copy of the 20DD will and presented it to Child C's lawyers in 20EE. There were protracted negotiations between Child A and Child C's Lawyers relating to the deceased's estate, including: ● Testamentary capacity ● Which Will to be submitted for Probate ● Who could apply for Probate ● The percentage share each of the deceased's four children would get ● Access to item's claimed to belong to Child C that were in the property at the time of death ● Process by which the deceased's property would be sold ● The payment of Child C's legal expenses ● The valuation of the deceased's household contents The negotiations between Child A and Child C's lawyers at 20FF when Child A ceased handling the negotiations, Lawyer A was appointed lawyer for Child B to pursue negotiations on his/her behalf. Child A reasons for ceasing to handle the negotiations and act as executor were due to a cognitive impairment. Negotiations continued between Lawyer A and Child C's lawyers about numerous matters in dispute until 20FF when a Deed of Settlement was entered into between the deceased's four children. The Deed of Settlement evidenced the resolution of most of the disputed matters and included the term Child B would take necessary steps to apply for Probate of the 20DD Will. After the Deed of Settlement was entered into, it was realised that the original copy of the 20DD Will could not be located. After searches for the original copy of the 20DD Will were unsuccessful in 20FF an application was made to the register of Probate that Probate be granted on the copy of the 20DD Will. Initially Probate was not granted on the 20DD Will and resulted in complex requisitions made by the Probate Registrar. Child B subsequently appointed, in 20GG, Lawyer B that specialises in these issues to attend to responding to the complex requisitions. Lawyer B lodged further documents in 20GG to address the Probate Registrar's requisitions, but this resulted in further complex requisitions from the Registrar. As a result a Probate specialist counsel was engaged to respond further and their responses finally resulted in Probate on the copy of the 20DD Will being granted in 20HH. After Probate was granted Child B, who lives interstate, became aware that the carport to the deceased's property had been substantially damaged due to a storm. It had been indicated that the manager of the Body Corporate had been notified of this, but upon contacting the manager they had denied receiving the report. Further discussion between Child B and the Body Corporate manager ensued to have the damage repaired, which was finally carried out in 20JJ. The deceased's property was then put on the market. A contract of sale was entered into in 20JJ and settlement occurred in 20LL.

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

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 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). The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion: ● 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 (eg 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 reasons outside the beneficiary or trustee's control. In your case, the delay in disposal was caused by the challenging of the will, the original executor's illness and the complex nature of the estate which also delayed the granting of Probate. Having considered the particular circumstances of this case, the Commissioner will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit to 20LL.