Private ruling: CGT- Main residence exemption
Date of advice: 16 January 2018
Published: June 2018
Ruling period: Year ending 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time to the two year period? | A1: No

Relevant facts and circumstances: The property was acquired by the deceased as a tenant in common prior to 1985. The property was used by the deceased as their principal place of residence until their passing. The deceased was residing in an aged care facility for a number of months before they passed. After the deceased death the property was in an unliveable condition requiring extensive repairs. The work took a number of months to bring the property to a liveable state. Part of the property was being leased to a neighbour during the time from the deceased death until the property sold. The property was sold more than two years after the deceased’s death.

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

Reasons for decision: Summary: Section 118-195 of the ITAA 1997 allows an individual to disregard a capital gain or capital loss made from a capital gains tax (CGT) event (ie. sale of the property) that happens in relation to a dwelling where: The ownership of the dwelling passed to you as the beneficiary of a deceased person's estate, The deceased person died after 20 August 1996, The deceased acquired the dwelling before 20 September 1985, and The dwelling was the deceased person's main residence just before death. You fit into the above requirements. Therefore, you may be eligible to disregard the capital gains tax if: ● you dispose of your interest in the dwelling within two years of the deceased's death, or ● the dwelling is your main residence from the date of death until the time your ownership ends. A trustee or beneficiary of a deceased estate may apply to the Commissioner to grant an extension of the two year time period, where the CGT event happens in the 2008-09 income year or later income years. Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example: ● the ownership of a dwelling or a W ill 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. These examples are not exhaustive. In exercising the discretion the Commissioner will also take into account whether and to what extent the dwelling is used to produce assessable income and for how long the trustee or beneficiary held the ownership interest in the dwelling. You submit that the sale of the property was impacted by the unliveable condition of the property. The reason you have cited for the delay was due to the condition of the property and not the complexity of the administration of the estate. Income was derived from the property for the entire period following the deceased’s death. Also, the decision to perform restoration on the property was within the control of the administrators and therefore it cannot be said that that settlement of the contract of sale was outside the beneficiary or trustee’s control. As such the Commissioner will not exercise his discretion in your case.