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Edited version of your written advice
Authorisation Number: 1012767168238
Ruling
Subject: Main residence exemption
Question 1
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?
Answer
Yes.
This ruling applies for the following period:
Year ending 30 June 2015
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
The deceased passed away during the 20YY financial year.
The property was the deceased's main residence up until their death.
The property was purchased by the deceased after 19 September 1985.
The deceased did not receive any income from the property.
There was a dispute between the beneficiaries as to who should be executors/administrators of the will together with the distribution of the estate.
After protracted correspondence between each beneficiaries' lawyer, the beneficiaries came to an agreement.
The beneficiaries signed a Deed of Family Arrangement during the relevant financial year.
Probate was granted during the relevant financial year.
The property settled during the relevant financial year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-195.
Reasons for decision
Summary
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.
Detailed reasoning
Section 118-195 of the ITAA 1997 allows an individual to disregard a capital gain or capital loss made from a Capital Gains Tax event (ie. sale of the property) that happens in relation to a dwelling where:
• The ownership of the dwelling passed to you as the beneficiary of a deceased person's estate,
• The deceased person died after 20 August 1996,
• The deceased acquired the dwelling after to 20 September 1985, and
• The dwelling was the deceased person's main residence just before death.
You fit into the above requirements. Therefore, you may be eligible to disregard the capital gains tax if:
• you dispose of your interest in the dwelling within two years of the deceased's death, or
• the dwelling is your main residence from the date of death until the time your ownership ends.
The two year time period to dispose of the property expired in during the 20YY financial year. Therefore, you will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period.
The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion:
• 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 estate was complex, this was due to:
• The dispute between the beneficiaries as to who should be executors/administrators of the Will together with the distribution of the estate.
• All beneficiaries signed a Deed of Financial Arrangement during the relevant financial year, more than three years after the deceased passed away.
Probate was granted during the relevant financial year and the contract to sell the property settled during the relevant financial year. The house was never used to produce assessable income.
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.
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