Private ruling: Main residence exemption and the two year extension for deceased estates
Date of advice: 7 September 2016
Published: October 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 (ITAA1997) and allow an extension of time to the two year period? | A1: Yes.

Relevant facts and circumstances: The deceased acquired the property between 19AA and 19BB when they inherited it from their family member who had passed away. The property was the deceased main residence until their passing and has never been used to produce income. The deceased died in 20XX leaving three family members as the beneficiaries and executors of their estate. Two of the three family members have relocated and communication, at times, has been difficult. Probate was granted in 20XX. The property was initially listed for sale in 20XX with offer over $XXX. After several months with no serious offer the agent was notified of the intention to end the listing agreement in 20YY. In 20YY the property was listed with a different agent who began another series of showings. During this time the property next door began construction of a driveway along the rear easement of the deceased's property and began renovation works and a lack of dividing fence between the properties meant that workers were driving across the garden to access the property. This made the deceased's property less attractive to buyers. In 20ZZ you received an offer and contracts were signed with the potential purchaser. The purchaser arranged a building and pest inspection for the property. During this report it was found that a construction on the property had previously had pest activity. That issue and the lack of finance by the purchaser the sale did not proceed. The property was relisted and a second offer was made in 20ZZ. Contracts were signed but not exchanged as the purchaser changed their mind about the purchase of the property. In 20ZZ, exactly two years after the deceased's date of death, you received a third offer. After a slight delay contracts were signed and exchanged. Settlement occurred in 20ZZ.

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

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 allows a trustee of a deceased estate to disregard a capital gain or loss from a dwelling 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). 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 (eg 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 this case, there was a delay in selling due to several of the offer that you did receive fall through due to no fault of the beneficiaries. Had the initial purchasers contract proceeded as planned the property would have been sold within the two year period. We have also taken into consideration that there was a contract of sale on the property just as the two year period ended, but due to legislation the actual timing of the CGT event for the purposes of a deceased estate is when the beneficial ownership ends taking to mean the settlement date which was just XX days after the two year time limit expired. This shows that an effort to dispose of the property within two years of the deceased's death was made. Having considered the particular circumstances of this case, the Commissioner will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.