Private ruling: Application requesting exercise of Commissioner's discretion
Date of advice: 25 February 2016
Published: April 2016
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion provided under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 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 acquired the property with their spouse as joint tenants prior to September 1985. The dwelling on the property was the family home and main residence of the deceased and their spouse throughout the years. The spouse of the deceased died after September 1985 and their pre-CGT interest passed to the deceased and became a post CGT interest of the deceased at or about this time. The deceased passed away in 20XX. The deceased therefore held immediately before their death, 50% of the property as a pre-CGT asset and 50% of the property as a post CGT asset (acquired by reason of the death of their spouse). The dwelling on the property was the main residence of the deceased immediately before their death and was not then being used by the deceased for the purpose of producing assessable income. From around the time of the deceased's death, a family member of the deceased lived in the dwelling, with their children for a number of months. This family member was involved in serious personal circumstances which are still ongoing. These circumstances necessitated significant involvement and assistance given by the executor over this period which caused a delay in preparing the principal residence for sale. After this family member moved out, the residence was prepared for sale. A contract for the sale of the property was signed by the executor with completion scheduled within the two-year main residence exemption period. However, this contract was later rescinded by the purchaser. The executor then took immediate steps to secure a second contract for the sale of the property. This second contract was completed outside the two-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 purchased by the deceased and their spouse prior to September 1985. When the spouse of the deceased passed away, their pre-CGT interest of the property passed to the deceased and became a post CGT interest of the deceased. The deceased therefore held immediately before his/her death 50% of the property as a pre-CGT asset and 50% of the property as a post CGT asset. This property was the deceased's main residence until they passed away in 20XX. The property was not sold within the two-year main residence exemption period. 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.