Private ruling: Capital gains tax
Date of advice: 9 June 2016
Published: July 2016
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the Commissioner exercise the discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two-year main residence exemption period? | A1: Yes.

Relevant facts and circumstances: The deceased acquired property prior to 20 September 1985. They occupied it as their main residence until they passed away. You were appointed as the executor of the deceased estate. At the time of the deceased's death another one of your relatives was ill. They were admitted to hospital and later passed away. You suffered numerous health problems subsequent to this and were admitted to hospital. You advise that these events affected your ability to administer the estate at the time. When you did attend to the estate and instructed your solicitor to apply for probate, the will was challenged. The property then became income producing to assist with keeping the property maintained and to help pay for the costs of the property. You rented out the property in your capacity as executor of the estate to cover and pay for these costs. At this time the beneficiaries of the estate were still undetermined. Probate was finally granted sometime later due to the complexities of the court hearings. The property then passed to you as a beneficiary of the deceased estate.

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

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 two years of the deceased's passing. 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.