Private ruling: CGT - main residence exemption
Date of advice: 10 June 2024
Published: 22 July 2024
Ruling period: Year ending 30 June 20XX
Date scheme commenced: DD MM 20XX

Ruling: Q1: Will the Commissioner exercise their discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the 2-year period to DD MM 20XX so that you can obtain the full main residence exemption? | A1: Yes.

Relevant facts and circumstances: Your late parent (the deceased) acquired a dwelling on DD MM 20XX. The property was a main residence and the deceased lived in the property during the entire ownership period. The deceased was an Australian resident and the area of the property was less than 2 hectares. The property was not used by the deceased to produce assessable income. The deceased passed away on DD MM 20XX. You and your sibling inherited the property together in equal shares. There were a number of delays in the administration of the deceased's estate. The original executor appointed under the deceased's Will relinquished executorship shortly after beginning to act in the role. Letters of administration were granted several months later. Your sibling was appointed to be the legal personal representative of the deceased's estate. In MM 20XX, you received legal advice to wait further time before taking steps to dispose of the property. This was in case a family provision came to light. In MM 20XX, you and your sibling were confirmed the beneficiaries of the deceased's estate. In MM 20XX, your sibling was diagnosed with cancer and had to undergo treatment. The Covid-19 pandemic also added to the delay in selling the property. Your sibling was severely immunosuppressed and needed to avoid social contact to reduce the possibility of infection. You were not able to take over these responsibilities due to the nature of your work. Between MM 20XX and MM 20XX, you and your sibling made frequent visits to the property where possible to remove the deceased's belongings. You and your sibling took steps toward selling the property and approached a real estate agent in MM 20XX. The property was listed a few months later and you accepted the first offer you received in MM 20XX. You entered into a contract to sell the property on DD MM 20XX. The sale settled on DD MM 20XX. The property was kept unoccupied and was not used to derive rent at any point since the deceased's death.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1997 subsection 118-195(1)

Reasons for decision: Summary: The rules for dealing with a dwelling inherited from a deceased individual are set out in section 118-195 of the ITAA 1997. You may disregard a capital gain you make from a CGT event that happens to your ownership interest in a dwelling if: • you are an individual • the interest passed to you as a beneficiary in a deceased estate, and • the deceased was not an excluded foreign resident just before their death. For property acquired by the deceased after 20 September 1985, you must also satisfy Item 1 of the table in subsection 118-195(1) of the ITAA 1997. Item 1 provides that the property must have been deceased's main residence just before their death and not used for the purpose of producing assessable income. Your ownership interest must end within 2 years of the deceased's death. The Commissioner has the discretion to extend this period. The Commissioner has exercised this discretion in situations where the delay in disposing the property within 2 years was due to circumstances outside of the beneficiary's control. The Commissioner considers all of the facts and circumstances of the case. The factors that would weigh in favour of exercising the discretion includes: • the ownership of the dwelling, or the Will, is challenged • a life tenancy or other equitable interest given in the Will delays the disposal of the dwelling • the complexity of the deceased estate delays the completion of administration of the estate • settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of your control, or • restrictions on real estate activities imposed by a government authority in response to the COVID-19 pandemic. Factors that would weigh against exercising the discretion include: • waiting for the property market to pick up before selling the dwelling • waiting for refurbishment of the dwelling to improve the sale price • inconvenience on the part of the trustee or beneficiary to organise the sale of the dwelling, or • unexplained periods of inactivity by the executor in attending to the administration of the estate. The circumstances that caused the delay in disposing of the ownership interest are more important than the length of the delay. There must be evidence of relevant circumstances which caused the delay. An extension will not be granted even for a short time outside of the 2-year period if there are no relevant circumstances present. | Detailed Reasoning - Application to your circumstance: You inherited your interest in the property as a beneficiary of the deceased's estate. The property was acquired by the deceased after 20 September 1985. The deceased was an Australian resident. The property was the deceased's main residence and was not used by the deceased to produce assessable income. The deceased individual passed away on DD MM 20XX. The time limit expired on DD MM 20XX, being 2 years after the death of the deceased. The dwelling was not sold until DD MM 20XX, approximately 3 months outside of the 2-year period. The prolonged delay in disposing of the property was due to a number of factors which prevented you from dealing with the property sooner, such as: • delays in the administration of the estate due to the original executor under the deceased's Will resigning • legal advice was provided to wait further time before dealing with the dwelling as it was possible a family provision claim could come to light soon after the deceased's death • the sole legal personal representative of the estate was diagnosed with cancer shortly after the deceased's death which caused further delays • you were not able to take over these responsibilities due to the nature of your work, but co-ordinated with your sibling as best as possible to attend the property and prepare it for sale The circumstances of the case and explanation for the delay support the case for an extension of the time limit. The delays were outside of the legal personal representative's control as well as your own. The sale occurred quickly after the property was listed and the contract was signed only a short period outside of the 2 years. Having considered these factors and your circumstances, the Commissioner will exercise the discretion in subsection 118-195(1) to extend the time limit to DD MM 20XX to enable you to disregard the capital gain from the disposal of the dwelling you inherited from the deceased.