Private ruling: Capital gains tax
Date of advice: 18 January 2017
Published: June 2017
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 ('ITAA 1997') in relation to the property and allow an extension of time until DDMMYY? | A1: Yes

Relevant facts and circumstances: You are a testamentary trust set up under the Will of the deceased who died on DDMMYY. Included in the assets of the deceased estate is a residential property which was the deceased's main residence. The property was purchased on late 19XX. The property is not more than 2 hectares. The legal personal representative (LPR) of the deceased's estate obtained probate on late 20XX. Assets in the deceased's were passed on to the LPR upon death and then from the LPR to you in accordance with the Will. The property was rented out to an unrelated party for rental income. Beneficiaries of the trust are S and G (a minor). S was diagnosed with serious ongoing health issues in late 20XX. The property was sold, with settlement occurring on DDMMYY.

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

Reasons for decision: Summary: Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997) applies generally to include a capital gain or capital loss in your assessable income. | Detailed Reasoning - Main Residence Exemption: In your situation, a capital gain or capital loss may be disregarded under subsection 118-195 of the ITAA 1997 in certain circumstances. This provision provides that any capital gain or capital loss you make from the sale of a residence that you own as the trustee of a deceased estate, where the deceased acquired the property on or after 20 September 1985, is disregarded if: ● the sale happens within two years of the deceased's death ● the residence was the deceased's main residence just before they died and was not then being used to produce assessable income. ATO ID 2006/34 states that the words 'trustee of a deceased estate' as used in section 118-195 of the ITAA 1997 are not limited to a legal personal representative but include the trustee of a testamentary trust. In your case, the property was the deceased's main residence just before they died. In accordance with the deceased's Will the property was transferred to a testamentary trust. The property has since been rented out. 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 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 Having considered the circumstances and the factors outlined above, the Commissioner is able to apply his discretion and allow an extension of time until DDMMYY.