Private ruling: Extension of time to the two year exemption from capital gains tax for a deceased’s main residence.
Date of advice: 29 June 2018
Published: September 2018
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: XX 20XX

Ruling: Q1: Will the Commissioner exercise his discretion under 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time to the two year period until XX 20XX? | A1: Yes 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 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 the main residence of the deceased until they passed away. In this instance the property was not sold within the two year period as there were serious health issues and debilitating stress due to the medical conditions of the executor and spouse. This stress led to a relapse and debilitated the executor for several months in the two year period. Despite these unforeseen serious personal circumstances arising in the two year time frame, they still worked to get the property at a sellable state and actively marketed the property before the end of the two year period. For these reasons the Commissioner will exercise his discretion and extend the period of time until XX 20XX. If the property does not sell by this date the estate will be liable for tax on the capital gain that arises from the sale of the property.

Relevant facts and circumstances: The deceased acquired the property, which was their main residence, after 20 September 1985. The child of the deceased is the sole executor of the estate and one of the beneficiaries of the estate. The property was not used at any stage to produce income before or after the passing of the deceased. The property has been actively on the market before the end of the two year period. A contract has been entered into to sell the property but settlement has not yet occurred. An extension of time is being requested due to the serious health issues of the executor and their spouse and debilitating stress related to those issues. The property was in disrepair and substantial work needed to be done to get it ready for sale. The work completed was repairs only and no capital improvements were made to the property. This process was done slowly due to their health concerns and limited funds needed to complete the work.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 115-A | Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1997 section 104-10