Private ruling: Capital gains Tax and the Commissioner's Discretion
Date of advice: 8 October 2015
Published: October 2015
Ruling period: Year ending 30 June 2016
Date scheme commenced: 01 July 2015

Ruling: Q1: Can the administrator claim the full main residence exemption under the capital gains provisions without an extension of time to the two year period? | A1: No. | Q2: 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? | A2: Yes.

Relevant facts and circumstances: The deceased died in 20XX. The deceased left a will appointing a sole executor however they didn't want to be involved with the estate administration and never applied for probate. One of the deceased's beneficiaries applied and was granted the role of administrator of the estate nearly 12 months after the death. There are three beneficiaries of the estate. The administrator is entitled to more than 50% of the residual estate with the remaining balance split between the remaining beneficiaries. The decreased resided at the property for 40 years prior to their death. The property is less than 2 hectares. The property was sold and settled in 20YY. The administrator resided with the deceased for the last 15 years and acted as their sole carer. The administrator is currently living at the property as the tenant for the new venders. The property has never been used to produce assessable income during the ownership period of the deceased or the administration period. There was a contract that fell through because of funding prior the sale in 20YY. The administrator; the main residual beneficiary was residing in the property and unable to relocate to a suitable housing. Once the administrator was appointed the property was disposed of within 24 months.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-130(3), | Income Tax Assessment Act 1997 section 118-195 and | Income Tax Assessment Act 1997 subsection 118-195(1).

Reasons for decision: Summary: A capital gain or capital loss is disregarded under section 118-195 of the ITAA 1997 where a CGT event happens to a dwelling that passed to you as beneficiary of a deceased estate or as the trustee of the deceased estate. The availability of the exemption is dependent upon: • who occupied the dwelling after the date of the deceased's death, or • whether the dwelling was disposed of within two years of the date of the deceased's death. For a dwelling acquired by the deceased, you will be entitled to a full exemption if: • the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of the following relevant individuals: • the spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased) • an individual who had a right to occupy the dwelling under the deceased's will, or • an individual beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary, or • your ownership interest ends within two years of the deceased's death. 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 sale settled more than two years after the deceased's death, therefore, the alternative basis of exemption is also not satisfied. 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. In determining whether or not to grant an extension the Commissioner is also expected to consider whether and to what extent the dwelling is used to produce assessable income and how long the trustee or beneficiary held it. Application to your circumstances In your circumstances, we consider that the deceased estate was complex which led to delays in the completion of the administration. There were reasonable delays in the sale of the property and there were health issues relating to the Administrator. 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.