Private ruling: Capital gains tax
Date of advice: 1 June 2016
Published: July 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the Commissioner exercise the discretion provided under section 118-195 of the Income Tax Assessment Act 1997 to extend the two-year main residence exemption period until the settlement date of the property? | A1: Yes

Relevant facts and circumstances: The deceased purchased property before 20 September 1985. The property was their main residence from the time they bought it until they passed away. The property is less than 2 hectares and it has never been used to produce assessable income. The deceased died intestate. Locating the deceased's next of kin took a considerable amount of time. In addition, the distribution of the estate was challenged. Settlement for the sale of the property occurred outside of the 2 year main residence exemption period.

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

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). 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, the property was acquired by the deceased before September 1985. The deceased therefore held the asset as a pre-CGT asset immediately before their death. The property was the deceased's main residence until they passed away. The property was not sold within 2 years of the deceased's death. Accordingly, you will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the two 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 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. 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 the settlement date of the property.