Private ruling: Capital gains tax - deceased estate – Commissioner’s discretion to extend the two year period – main residence exemption
Date of advice: 19 September 2018
Published: October 2018
Ruling period: Year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the dwelling on the property and allow an extension of time to the two year period to the date of settlement of the property? | A1: Yes

Relevant facts and circumstances: The deceased passed away in late 20XX Probate was granted in early 20XX The deceased had previously owned and lived in the inherited property since 19XX With the agreement of your sibling, your child moved into the property in July 20XX with the intention of staying there until their new home was built A number of issues occurred over the following years that delayed them leaving the property The property was sold in late 20XX You child moved into the new home in late 20XX

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), or ● from the deceased's death until the trustee's ownership interest ends, the dwelling was the main residence of one or more of the following persons: (a) the spouse of the deceased immediately before death; or (b) an individual who had a right to occupy the dwelling under the deceased's will; or (c) an individual who brought about the CGT event and the ownership interest in the dwelling passed to that individual as beneficiary. In this case, the property was the deceased’s main residence when they died and the trustee's ownership interest in the dwelling ended more than two years after the date of the deceased's death. The Commissioner has the discretion to extend the two year period. This extension is generally only granted where the executors are merely arranging the ordinary sale of the dwelling and the cause of the delay is beyond their control (for example, if the will is challenged). There must not be any other factors mitigating against exercising it. 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; 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 your case, the delay in disposing of the dwelling within the two year time period was due to an agreement between your sibling and yourself to allow your child to live in the property pending the completion of their own home. The agreement was extended for an indefinite period because of your child’s personal circumstances until late 20XX when the property was sold. Having considered the circumstances and the factors outlined above, the Commissioner is unable to apply his discretion under subsection 118-195(1) of the ITAA 1997 and cannot allow an extension of time.