Private ruling: Request for the Commissioner to exercise discretion
Date of advice: 29 February 2016
Published: April 2016
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the Commissioner exercise the discretion provided under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two-year main residence exemption period until the settlement date with respect to the dwelling the deceased previously resided in? | A1: Yes.

Relevant facts and circumstances: The deceased passed away in 20XX. There are two executors of the deceased's estate. The deceased's property is less than two hectares in size and contains two separate residential dwellings. The land component of the property is a pre-CGT asset as it was acquired prior to 20 September 1985. Construction of both dwellings commenced after 20 September 1985, hence both dwellings are taken to be separate CGT assets, and separate from the land. The deceased resided in one of the dwellings until his/her death. As of the time of his/her death, the other dwelling was occupied by a family member. This family member did not pay any rent to the deceased for the use of the property. After the deceased passed away, there was a dispute over the family member's entitlement, to occupy the dwelling. This dispute was only finalised in 20XX The property was never subdivided. The property was not capable of being sold as two separate residences. The property was placed on the market for sale by the executors in 20XX. You advise that the market for sale of the property is limited. The executors had discussions with a few purchasers but only one potential purchaser requested a contract (which did not proceed). In 20XX the executors entered into a put and call option deed in relation to the sale of the property. The settlement date has been extended twice due to the dispute over the deceased's family member's entitlement to occupy one of the dwellings. As a result, settlement will fall outside the two year main residence exemption period.

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

Reasons for decision: Summary: Subsection 119-195(1) of the ITAA 1997 states that if you own a dwelling in your capacity as trustee of a deceased estate (or if 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 prior to 20 September 1985, and two dwellings were constructed on the property in 19XX. Because construction of the dwellings occurred after 20 September 1985, both dwellings are taken to be separate CGT assets. The dwelling the deceased lived in was their main residence until they passed away 20XX. At the time of the application, settlement for the sale of the property was still yet to occur. As a result, you will only be able to disregard the capital gain from the sale of the dwelling which the deceased lived in 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 to cover the settlement of the property.