Private ruling: Capital Gains Tax, Main residence exception
Date of advice: 13 March 2017
Published: August 2017
Ruling period: Year ended 30 June 2017
Date scheme commenced: 01 July 2016

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and extend the 2 year period? | A1: Yes.

Relevant facts and circumstances: The deceased passed away. The property was acquired by the deceased. The deceased used the property as their main residence for the entire ownership period. The property was never used for income producing purposes. Probate was granted and title transferred to beneficiaries. You sought solicitor's advice regarding the selling of the property and met with various Real Estate agents. You appointed a Real Estate agent. You did essential repairs and maintenance on the property. One of the beneficiaries also an executor suffered serious health issues and underwent operations and rehabilitation. The other beneficiary, also an executor, encountered health problems within their immediate family, with their partner's parent suffering an illness. There was a delay in the sale with the vendor sighting delays in obtaining finance. This delayed the settlement - requiring 90 days for finance to be available. The property was sold. The property settled.

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 ● deceased acquired dwelling after 20 September 1985 and it was their main residence just prior to death ● your ownership interest ends within two 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 purchased by the deceased before 20 September 1985 but was not sold within two years of the deceased's date of death. The Estate 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 In this case, one of the beneficiaries of the Estate experienced serious health issues requiring operations and rehabilitation. The settlement of the sale was also unexpectedly delayed due to the vendor unable to finalise the finance. 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 the requested date.