Private ruling: CGT exemption for main residence
Date of advice: 18 November 2015
Published: November 2015
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 20ZZ

Ruling: Q1: Will the Commissioner exercise his discretion under subsections 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two year time period until the disposal of the dwelling? | A1: Yes


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-195

Reasons for decision: Summary: Tax Laws Amendment (2011 Measures No. 9) Act 2012, which received Royal Assent on 21 March 2012, gives the Commissioner discretion to extend the time period in subsection 118-195(1) of the ITAA 1997, where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death. Subsection 118-195(1) of the ITAA 1997 provides that if the deceased died on or after 20 September 1985 and had acquired the dwelling on or after 20 September 1985 and you have an ownership interest in a dwelling that passed to you as a beneficiary in a deceased estate, or you have owned it as trustee of a deceased estate, you disregard any capital gain or capital loss you make from a capital gains tax (CGT) event that happens to the dwelling if the following applies: • you disposed of your ownership interest within two years of the deceased's death (or a longer period allowed by the Commissioner), and • just before the deceased's death: • the dwelling was their main residence; and • it was not then being used to produce assessable income. The Commissioner would be expected to exercise 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 case, the deceased owned the property until their death in 20XX and at that time the deceased's will set out that the property was to be sold. A Court order that was in existence at that time prevented the sale of the property at the time; it was not until late 20YY that the property was able to be sold. You were able to complete the sale of the dwelling in October 20ZZ. It was the existence of this Court order that added complexity to the deceased estate in that it delayed completion of administration of the estate in a timely manner. It interfered with your ability to dispose of the property within the two-year time period in order to take advantage of the CGT main residence exemption that is generally available for trustees of deceased estates. Accordingly, the Commissioner will exercise his discretion under subsection 118-195(1) of the ITAA 1997 to extend the two year time period to dispose of the dwelling.

Relevant facts: The deceased died in 20XX. | The deceased was the sole owner of a property which was brought prior to 1985. | The property was a dwelling that was occupied by another person. The occupancy of the dwelling was set out in a Court order. | The effect of this order prevented the finalisation of the deceased's estate. | In late 20YY the circumstances of the occupant changed and this allowed the deceased's estate to be finalised by way of sale of the property. | The property was subsequently sold in mid 20ZZ with the settlement in late 20ZZ. | The property had not been used for income purposes at any time.