Private ruling: Deceased estate – two year exemption
Date of advice: 21 November 2017
Published: April 2018
Ruling period: Year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Will the Commissioner exercise his discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) and extend the two year time period until XX November 20XX? | A1: No

Relevant facts and circumstances: The deceased died on XX September 20XX. A property (the property) was the main residence of the deceased at the time of their death. The property was acquired by the deceased before 20 September 1985. In the deceased’s will, the property was left to family members as beneficiaries in the following proportions: ● 2/4 share to C ● 1/4 share to R; and ● 1/4 share to M. The C was appointed Executor under the deceased’s will. The C lived in the property prior to the deceased’s death and continued to live in the property until its disposal. Between September 20XX and September 20XX, renovation work was completed on the property and the house was painted to prepare it for sale. The property was place on the market for sale at the start of October 20XX. A contract for sale was signed on XX October 20XX, with settlement occurring XX November 20XX. The property was part of the estate at the time of disposal.

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

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). You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period in which you can dispose of the property. 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, there has been no challenge to the will, the estate was not complex, there were no unforeseen or serious personal circumstances the prevented the sale, and the delay in selling the property is not due to circumstances beyond the beneficiary or trustee’s control. Having considered the relevant circumstances, the Commissioner will not exercise his discretion and extend the 2 year time limit.