Private ruling: Deceased estate main residence exemption
Date of advice: 2 September 2016
Published: October 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the Commissioner, exercise 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: Yes

Relevant facts and circumstances: The deceased died in 20XX. The deceased purchased a property with his/her spouse as joint tenants prior to 1985. The deceased became the sole owner of the property after 1985 when his/her spouse passed away. The property was the deceased's main residence. In the deceased's will, the entire estate was given to the Executors to be held on trust for his/her child, Individual A. While the will did not provide Individual A with a specific right to occupy the property, the Executors were required to ensure that Individual A was provided with suitable accommodation and domestic care. A resided in the property until early 20XX, at which time Individual A took up permanent residency at a high care facility due to their legal incapacity resulting from a medical illness. Once it was confirmed Individual A would be unable to return to the property, it was listed for sale. The property was not rented at any time after the deceased's death. The property was advertised for sale and sold in 20YY. The property sale settled more than two years after the deceased's death.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-130(3). | 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). In this case, the property was purchased by the deceased prior to 1985 with his/her spouse as joint tenants. The deceased became the sole owner of the property after 1985 when his/her spouse passed away and it was his/her main residence until they passed away in 20XX. Subsection 118-130(3) of the ITAA 1997 provides that where the sale or other disposal of the dwelling proceeds under a contract, the ownership interest ends at the time of settlement of the contract of sale and not at the time of entering the contract. The property settled more than two years after the deceased's death. However, subsection 118-195(1) of the ITAA 1997 confers on the Commissioner discretion to extend the two year exemption period, thus this alternative basis of exemption in the provision may apply. 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 (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 reasons outside the beneficiary or trustee's control. The delay in disposing of the property was caused by the serious personal circumstances experienced by Individual A. Individual A's legal incapacity resulting from a medical illness, and finding suitable accommodation and health care delayed selling the property. This prevented you from disposing of the property within the two year time limit. Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit. Utilising this extension, the capital gain from the sale of the property may be disregarded.