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Edited version of your written advice
Authorisation Number: 1012781214059
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 20XX financial year.
The deceased owned a property.
The property was purchased prior to 19 September 1985.
The property was the deceased's main residence.
The property has never been used to produce assessable income.
There was a delay in the administration of the Estate due to:
• The deceased died intestate.
• The deceased was indebted to their commercial landlord.
• Mediation resulted in the landlord accepting a reduced sum.
• The person who was originally representing the Estate was investigated and received a term of imprisonment. Their firm was closed by the Legal Services Commissioner.
• The State Revenue Office impounded the transfer documents seeking payment of double transfer duty.
• The Estate's present lawyers were instructed in 20YY after the files were retrieved through the Administrator/Manager.
• The trustee was unaware that the transfer documents had been impounded until they were informed that the State Revenue Office had sent a letter dated 20YY.
• The State Revenue Office agreed to release the original Transfer of Land and other documents during 20YY.
• The property was transferred to the Legal Personal Representative during 20YY.
• The trustee died in 20ZZ.
• Towards the end of 20ZZ, probate was granted in the Estate the trustee to the new trustee.
The contract was signed towards the end of 20ZZ to sell the property.
Settlement was early 20VV.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-195.
Reasons for decision
Section 118-195 of the Income Tax Assessment Act 1997 (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 prior 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 20YY. 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 quite complex, this was due to a number of reasons, including:
• The deceased dying intestate and the issues surrounding intestate succession laws,
• The State Revenue Office impounding the transfer documents,
• The Estate's initial law firm being closed by the Legal Services Commissioner,
• The Legal Personal Representative of the Estate passing away.
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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