Private ruling: Extension of main residence exemption for deceased estate
Date of advice: 20 November 2018
Published: March 2019
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner allow an extension of time to XX XXX XXXX for you to dispose of your ownership interest in the dwelling and disregard the capital gain you make on the disposal? | A1: No

Relevant facts and circumstances: The deceased passed away on XX May 20XX. The property was not used to produce income before or after the death of the deceased. The deceased’s children are the sole beneficiaries and executors of the estate. From March 20XX the property was as a temporary residence for the deceased’s relative and their spouse who were acting as caretakers. The deceased’s estate comprised of the house, investments and shares. The most complex aspect of it was the shares. The beneficiaries are both professionals, both work long hours. Probate was granted on XX November 20XX so no work could commence on marketing the property prior to this time. It was necessary to perform maintenance and improvements on the property to make it ready for sale. The deceased was elderly and the property was not well maintained. Over time painting inside and some outdoors and ongoing maintenance was undertaken, which included gardening. One matter that took time was replacing part of the driveway wooden gate. The replacement was not readily available these days and needed to be commissioned to be manufactured to match the others. All the usual cleaning, carpet cleaning, some redecorating to modernise the place was carried out by the family. The property was listed for sale in late January 20XX. The property was sold and settled on XX May 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 two years of the deceased’s death (the Commissioner has discretion to extend this period in certain circumstances). You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the two 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. These examples are not exhaustive. In exercising the discretion the Commissioner will also take into account whether and to what extent the dwelling is used to produce assessable income and for how long the trustee held the ownership interest in the dwelling. The reason you have cited for the delay was due to the repairs, maintenance and redecorating of the property and not the complexity of the administration of the estate. Also, the decision to perform the repairs, maintenance and redecorating on the property was within the control of the administrators and therefore it cannot be said that the delay in the sale of the home was outside the trustee’s control. As such the Commissioner will not exercise his discretion in your case.