Private ruling: Extension of main residence exemption for deceased estate
Date of advice: 17 September 2018
Published: November 2018
Ruling period: Year ending 30 June 2019
Date scheme commenced: 1 July 2018

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

Relevant facts and circumstances: The deceased passed away. Their main residence was purchased after September 1985, and was never used to produce assessable income. Their will, contained a 12 month right to occupy clause on the dwelling. You were not able to access the property prior to the end of this 12 month period. Once access was gained you were able to see the extent of the work required to prepare the house for sale. The deceased had commenced work on the property and that had to be completed. It was anticipated that the property would be on the market by a certain date. A builder was engaged to commence work however delays were encountered with the builder and then the builder walked away from the job. This caused financial restraints as the builder walked off without refunding moneys already paid. Further additional works were required in regards to asbestos in the dwelling. This culminated in family members having to complete the work themselves to minimise the costs.’ Further to this, the proximity of the house made it difficult to supervise and coordinate the works after the builder walked away and difficulty in engaging new trade people to quote and complete works required. A private ruling on this matter was previously applied for.

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 two years of the deceased’s death (the Commissioner has discretion to extend this period in certain circumstances). 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 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 held the ownership interest in the dwelling. The reason you have cited for the delay was due to the repairs and renovation of the property and not the complexity of the administration of the estate. Also, the decision to perform the refurbishment on the property was within the control of the administrators and therefore it cannot be said that the delay in the sale of the home was outside the trustee’s control. As such the Commissioner will not exercise his discretion in your case.