Private ruling: Capital gains tax - deceased estate
Published: June 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Commissioner exercise his discretion to extend the two year main residence exemption? | A1: Yes.

Relevant facts and circumstances: The property was purchased by your parents as joint tenants after 20 September 1985. Parent 1 acquired 100% of the property upon the death of parent 2. Parent 1 went into a nursing home just prior to parent 2 passing away. Parent 1 elected to continue to call the property their main residence from when parent 1 went into the nursing home. The property was not used to produce assessable income. An application for Probate was submitted in excess of 12 months after parent 1's death. There was a delay in application for Probate due to parent 2 dying intestate. You were required to search through documentation for any will left by parent 2 as well as establish and trace all the assets of both parents. In addition it was necessary for decisions to be made as to which of parent 1's appointed substituted Executors would apply for Probate. Furthermore, one of the substituted Executors experienced a lengthy period of illness during the two years after parent 1's death. Administration of the Estate was delayed due to the sudden retirement of your solicitor during the two years after parent 1's death. The spouse of the Executor of the estate became seriously ill and the Executor was required to take leave from work to undertake care duties. One of the Executors was unable to assist due to their remote location, work and family commitments. Contracts for disposal of the property were exchanged in excess of three years after parent 1's death. Settlement occurred approximately three months later.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-195 | Explanatory Memorandum for the Tax Laws Amendment (2011 Measures No 9) Act 2012

Reasons for decision: Detailed Reasoning - Commissioner's discretion: Please note that all references are to the Income Tax Assessment Act 1997. Subsection 118-195(1) provides a capital gains tax (CGT) exemption to a beneficiary or trustee of a deceased estate where a CGT event happens to a dwelling (or an ownership interest in a dwelling) acquired from a deceased estate. An exemption is provided where the beneficiary or trustee's ownership interest in the dwelling ends within two years of the deceased's death and just before the deceased's death (for pre-CGT dwellings) the dwelling was their main residence. The Commissioner has discretion to extend the two year time period in subsection 118-195(1) where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death. This discretion may be exercised in situations such as where: 1. the ownership of a dwelling or a will is challenged; 2. the complexity of a deceased estate delays the completion of administration of the estate; 3. 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 4. settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control. Using the guidelines provided, in particular points 2 and 3 above, the Commissioner will exercise his discretion under section 118-195 to extend the two year period for you to cease your ownership of the property.