Private ruling: CGT - Deceased estate - Main residence exemption 2 year extension
Date of advice: 2 March 2017
Published: August 2017
Ruling period: Year ended 30 June 20ZZ
Date scheme commenced: 1 July 20YY

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time to the two year period? | A1: Yes

Relevant facts and circumstances: The deceased purchased a property as their main residence pre 19 September 1985. The property did not produce assessable income. The deceased died in the year ended 30 June 20XX. The deceased's children were listed as the only beneficiaries in their Will. The Will was challenged and a Caveat was placed on the Will. The Caveat was withdrawn two months later. Probate was granted one month after the Caveat was withdrawn. The person who challenged the Will commenced proceedings in court X months after Probate was granted. Due to this, no part of the Estate could be distributed pending resolution. Proceedings were formally instituted in the court Y months later. Settlement was agreed on in the court more than eighteen months after the deceased died. The property was sold less than two years after the deceased died. Settlement of the property took more than two years after the date of death.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 118-195(1)

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 property was the deceased's main residence prior to the deceased's death. The property was not used to produce assessable income. The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion to extend the time period in which you can dispose of the property: ● 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 (eg 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 reasons outside the beneficiary or trustee's control. In determining whether or not to grant an extension the Commissioner is expected to consider whether, and to what extent, the dwelling is used to produce assessable income and how long the trustee or beneficiary held it. In this case, the delay was caused by the challenge of the deceased's estate. The settlement of the deceased's estate could not be finalised until a settlement was agreed upon in the court. This made immediate distribution of the property under the Will impossible and prevented the trustee from disposing of the property within the two year time limit. Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.