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Edited version of your written advice
Authorisation Number: 1012982633290
Date of advice: 11 March 2016
Ruling
Subject: Request for exercise of Commissioner's discretion
Question
Will the Commissioner exercise the discretion provided under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two-year main residence exemption period until the settlement date of the property?
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
The deceased purchased a property after 20 September 1985.
The property was their main residence. It was not used to produce assessable income.
The deceased passed away in 20XX.
Probate was applied for but was subsequently denied due to errors in the will.
You were advised to seek legal advice with regards to this. You did so and subsequently applied for Letters of Administration which were granted sometime later.
The two administrators lived in different states which added to the difficulty in settling the estate.
The property was sold with settlement occurring more than two years after the deceased passed away.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Section 118-195
Reasons for decision
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
• the property was acquired by the deceased on or after 20 September 1985 and the dwelling 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 ends within 2 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 after September 1985. The property was therefore a post CGT asset of theirs.
This property was the deceased's main residence until they passed away in 20XX. There was more than two years between the deceased's passing and the settlement date of the property. You 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 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.
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 settlement date of the property.
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