Private ruling: Deceased estate - CGT main residence exemption
Date of advice: 12 May 2017
Published: March 2018
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion under section 118-195 of the Income Tax Assessment Act 1997 and allow an extension of time to the two year period to 20XX? | A1: Yes.

Relevant facts and circumstances: The Deceased passed on 20XX. The Deceased purchased a property (the Property) on 19XX that was their principle place of residence from then until the date of their passing. The Deceased had completed a Will on 19XX that had been lodged with their Solicitors office for safe keeping. The Solicitors’ office had subsequently closed and an original copy of the Will could not be located until 20XX. An application for probate was lodged with the Supreme Court and was granted on 20XX. The Property passed to you as sole beneficiary under the Will. In 20XX you were required to travel overseas for a period of six months. You returned to Australia and were able to complete the maintenance repairs required to the Property to make it ready for sale in early 20XX. There were no improvements or capital works completed on the Property at that time. A contract of sale was entered into for the Property, which settled on 20XX. The Property was not used to produce assessable income, nor was it occupied from the date that the Deceased passed, to the date of settlement.

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 your circumstances, the Deceased had purchased the Property and lived in it as their main residence from 19XX until the date of their passing. The Property remained empty from the date of passing to the date it was sold and was not used to produce assessable income in that period. The property was not sold within 2 years of the Deceased’s date of death. You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the 2 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 In your circumstances, the Deceased’s had completed a Will on 19XX, which was lodged with their Solicitors’ office. An original copy of the Will could not be located until 20XX. An application for probate was then lodged with the Supreme Court and was granted on 20XX. The Property passed to you under the Will as sole beneficiary. You were required to travel overseas for a period of six months in 20XX. Upon your return in early 20XX, you completed the necessary repairs and maintenance to the property to make it ready for sale. No improvements or capital works were undertaken at this time. A contract of sale was entered into for the Property, which settled on 20XX. These delays have prevented the disposal of the property occurring within the two year time limit. 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 20XX.