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Edited version of your written advice
Authorisation Number: 1012972560655
Date of advice: 18 February 2016
Ruling
Subject: CGT - main residence deceased estate
Question
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 2017
The scheme commences on:
1 July 2016
Relevant facts and circumstances
The deceased passed away in 20XX.
Their main residence was purchased in 200X, and was never used to produce assessable income.
The deceased's will, gave a family member a right to occupy the property up to 20XX.
Current plans are that your family member will not be living in the house longer than their right to occupy.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 118-195(1).
Reasons for decision
Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that if you are an individual who owns a dwelling in a capacity as trustee of a deceased estate, then you are exempt from tax on any capital gain made on the disposal of the property if:
• the property was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income, and
• your ownership interest in the dwelling ends within two years of the deceased person's death, or
• the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of the following persons:
• the spouse of the deceased immediately before death, or
• an individual who had a right to occupy the dwelling under the deceased's will, or
• an individual who brought about the CGT event and the ownership interest in the dwelling had passed to that individual as beneficiary.
In your case, the deceased's main residence will not be sold within the two year time limit. The deceased's will, gave a family member a right to occupy the dwelling. However, your ownership interested in the dwelling will not cease on this same day.
Therefore, you will only be able to disregard the capital gain from the sale of the property if the Commissioner grants an extension to the two year time limit.
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; 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
For the purposes of determining whether a full exemption is available under section 118-195 of the ITAA 1997, an individual only has a right to occupy a dwelling under the deceased's will for the period specified in the will. An exemption is not available for any part of your ownership period that a person who had a right of occupancy continues to occupy the dwelling in some other manner (for example, as a licensee or tenant).
In your case, the delay in disposal of the dwelling has been due to the right to occupy specified in the will.
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. Accordingly, if the family member does not occupy the dwelling longer than their right to occupy and the property is sold by 30 June 2017 you will be entitled to the full main residence exemption, and therefore able to disregard the capital gain on the sale of the property.
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