Private ruling: Main residence exemption - Deceased estate
Date of advice: 1 March 2016
Published: April 2016
Ruling period: Year ending 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 (ITAA 1997) and allow an extension of time to the two year period? | A1: No.

Relevant facts and circumstances: Their main residence of the deceased was purchased after 20 September 1985 and was never used to produce assessable income. The deceased resided in the dwelling with a family member. It was the deceased's wish that your family member was allowed to remain in the dwelling until they were married. The deceased did not have a will. Your family member did not have a formal right to occupy the property. You sought legal assistance in relation to the deceased's estate a few months after the death. The dwelling was later transferred into your names. The dwelling is now listed for sale.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 118-195(1) and | Income Tax Assessment Act 1997 Section 118-200.

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 disregards a capital gain or loss from a CGT event that happens to a dwelling owned by a taxpayer as a trustee of a deceased estate, if: • the taxpayer's ownership interest ends after 20 August 1996 and within 2 years of the person's death or • from the deceased's death until the taxpayer's ownership interests ends, the dwelling was not used to gain or produce income and it was also the main residence of one or more of: • the spouse of the deceased immediately before death, • an individual who had a right to occupy the dwelling under the deceased's will. This outcome is consistent with the general rule of construction that the intent of the deceased must be ascertained from the words of the will and that one cannot speculate or guess after that intention. (see Certoma, GL 1987, The Law of Succession in New South Wales , The Law Book Company, Sydney, p. 117) An individual would be considered to occupy a dwelling under the deceased's will if it was in accordance with the terms of the will. This would also be the case if it was in pursuance of the will or under the authority of the will (see Evans v. Friemann (1981) 53 FLR 229 at 238). In your case, the deceased's main residence has not been sold within the two year time limit. The deceased did not have a will in place to stipulate a right to occupy the dwelling for your family member. While it may have been the wishes of the deceased for your family member to reside in the property, this is not enough for the purposes of the main residence exemption. Therefore as there was no right to occupy the dwelling under the will, the capital gain made on the disposal of your portion of the dwelling will not be able to be disregarded entirely. You will be entitled to a partial exemption.