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Edited version of your written advice
Authorisation Number: 1012883628899
Date of advice: 24 September 2015
Ruling
Subject: Main residence exemption for a deceased estate
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 2016
The scheme commences on:
1 July 2015
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 relevant financial year.
The deceased bequeathed their half share of the main residence (the property) to their spouse.
The spouse was to stay in the property as a life tenant. Following the spouse's death the property was to pass to the designated beneficiary.
The deceased's spouse passed away during the subsequent financial year.
The property was acquired prior to 20 September 1985.
The property has never been used to produce assessable income.
An unconditional contract was signed in early 20XX with a four month settlement period.
The two executors of the estate were the deceased's children.
There was a delay in the administration of the Estate due to:
• The property was located in one State while each executor lived in a different state. This contributed to logistical issues in clearing the house and preparing it for sale.
• The spouse of one of the executors suffered an injury which resulted in a stay in hospital and home nursing visits for approx. three months. This resulted in the executor not being able to leave home to prepare the property for sale as they were caring for their spouse.
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 during the 2014-15 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 there was a delay in administering the estate due to a number of reasons, including:
• The executors losing both parents in the space of X months,
• The distance both executors lived from the property,
• The hospitalisation of the spouse of one of the executors,
• The length of the contract requested by the purchasers.
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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