Private ruling: Deceased Estate - CGT main residence exemption
Date of advice: 16 May 2017
Published: March 2018
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion under section 118-195 of the Income Tax Assessment Act 1997 and allow an extension of time to the two year period to 20XX? | A1: Yes.

Relevant facts and circumstances: The Deceased passed away between 20XX and 20XX. The Deceased had acquired a one third interest in a property in 19XX. Between 19XX and 19XX the Deceased acquired the remaining two thirds in the Property. The Property was the Deceased’s main residence. The Property had not been used to produce assessable income, nor has it been occupied since his passing. At the time of the deceased’s passing, there were two wills in place. Under both wills there were three beneficiaries. Two of the beneficiaries reside overseas. The earlier will named executor as the Trustee. An application for administration of the estate was lodged by a beneficiary on 20XX. The Trustee was notified of the application on 20XX. The Supreme Court granted letters of administration to the Trustee on 20XX. A contract of sale for the Property was entered into on 20XX, which settled on 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-195

Reasons for decision: Detailed Reasoning - Detailed reasoning: 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). In this case, a one third interest in the Property was purchased by the deceased prior to 19XX. The remainder interest in the property passed to the Deceased between 19XX and 19XX. The property was not sold within 2 years of the Deceased’s date of death. You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the 2 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 (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, the Deceased had two wills as at the date of their passing. Both wills named three beneficiaries. Two beneficiaries reside overseas. The earlier of the two wills named the Trustee as the executor of the estate. A beneficiary lodged an application for administration on 20XX. The Trustee was only notified of that application on 20XX. The Supreme Court granted letters of administration to the Trustee on 20XX. A contract for sale for the Property was entered into 20XX, which settled on 20XX. These delays have prevented the disposal of the property occurring within the two year time limit. Having considered the circumstances and the factors outlined above, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time until 20XX.