Private ruling: Capital Gains - Main residence exemption
Date of advice: 26 April 2017
Published: September 2017
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20WW

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and extend the 2 year period until XX XXX 20XX? | A1: Yes.

Relevant facts and circumstances: The deceased passed away in XXX 20VV. The property situated at XXXXXXX was acquired by the deceased in XXX 20UU. The deceased used the property as their main residence for the entire ownership period. The property was never used for income producing purposes. Due to the deceased executing their will only days before their death, Register of probates required medical evidence that the deceased had testamentary capacity to sign their will. After multiple attempts to obtain documentation, evidence was provided and an affidavit was written, whereby Letters of Administration were granted in XXX 20WW. XXXX and XXXX were granted probate and administration of the deceased Estate. Once the probate was granted the property was transferred into the administrator's names and XXXX and XXXX took possession of the property and commenced the process to put it on the market. A contract was signed in XXX 20XX and the property was sold in XXX 20XX.

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 ● deceased acquired dwelling after 20 September 1985 and it was their main residence just prior to death; 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 not purchased by the deceased before 20 September 1985 and was not sold within 2 years of the deceased's date of death. The estate will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the 2 year time period. The Commissioner can exercise his discretion in situations such as: ● 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 a 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. In this case the complexities that arose in regards to finalising the estate were attributed to the delays in relation to the completion of the administration of the estate. 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 XX XX 20XX.