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 in 20XX. The Property was acquired by the Deceased before 20 September 1985. Probate of the Will was granted in 20XX. A dispute occurred between the Beneficiaries of the Will. An application was made to the Courts in 20XX disputing the provisions made under the Will. The Beneficiaries unsuccessfully attended mediation in 20XX. The Court made orders in 20XX settling the dispute The Property was contracted to sell in 20XX, which settled in 20XX.

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 this case, the Deceased had purchased the Property in dispute on 19XX. The Deceased passed on 20XX and probate of their will was granted on 20XX. The property was not sold within 2 years of the date of the Deceased passing. 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 this case, the Beneficiaries began to dispute as to how the Will was to be distributed after the grant of probate. An application was made to the Court on 20XX disputing the provisions made under the Will. The Beneficiaries unsuccessfully attended mediation on 20XX and the Court made orders on 20XX to resolve the dispute. The Property in the Will was contracted to sell on 20XX, and settled on 20XX. These delays have prevented you from disposing of the property 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.