Private ruling: Deceased estate main residence exemption
Published: December 2013
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2013

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: Yes

Relevant facts and circumstances: The property was the deceased's main residence, before it was rented. The deceased moved to a nursing home. The deceased did not own any other dwellings. The property continued to be leased for a short period after the deceased's death. The deceased's last will appointed their children as joint executors of their estate. Following the deceased's death, the executors of the estate disagreed on many issues of the administration of the estate. The property has been vacant pending an agreement between the executors. No beneficiaries have resided in the property since the deceased's death. Legal proceedings and negotiations continued between the beneficiaries and the executors for some time. The executors came to an agreement about the sale of the property and it will be listed for sale shortly.

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

Reasons for decision: Summary: As per subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling or your ownership interest in it is disregarded if: (a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and (b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied. | Detailed Reasoning - And also one of these items: 1 the deceased *acquired the *ownership interest 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 your *ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner ........... 2 the deceased *acquired the *ownership interest before 20 September 1985 the *dwelling was, from the deceased's death until your *ownership interest ends, the main residence of one or more of: (a) the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or (b) an individual who had a right to occupy the dwelling under the deceased's will; or (c) if the *CGT event was brought about by the individual to whom the *ownership interest *passed as a beneficiary - that individual Section 118-145 of the ITAA 1997 allows you to choose to treat a dwelling as your main residence even though you no longer live in it. If you use the property to produce assessable income, you can choose to treat it as your main residence for up to six years after you stop living in it. Subsection 118-190 of the ITAA 1997 provides that if you acquire an ownership interest in a dwelling as the trustee or beneficiary of a deceased estate, you ignore any income producing use of the property before the deceased's death if the choice had been made under section 118-145 of the ITAA. In this case, when the deceased died the property passed to the legal personal representative. As the deceased did not own any other properties, the choice is available under section 118-145 of the ITAA 1997 to enable the property to be treated as the deceased's main residence just before their death. Although the property was used to produce assessable income just prior to their death, this use is disregarded under subsection 118-190(4) of the ITAA 1997. You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period in which you can dispose of the property. The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion: · 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 (eg 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 reasons outside the beneficiary or trustee's control. In this case, as a result of delays in the completion of the administration of the estate, it is unlikely that the property will be disposed of within two years of the deceased's death. Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.