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Edited version of your written advice
Authorisation Number: 1013030915777
Date of advice: 8 June 2016
Ruling
Subject: Capital gains tax
Question
Will the Commissioner exercise the discretion provided under section 118-195 of the Income Tax Assessment Act 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 2014
Year ending 30 June 2015
The scheme commences on:
1 July 2013
Relevant facts and circumstances
The deceased owned property which they lived in as their main residence. The property was never used to produce assessable income.
The deceased passed away.
The property was left to you under the deceased's will.
A relative of the deceased threatened legal action over the will.
An offer of settlement was subsequently reached and a deed of release was later signed to resolve this issue.
The property was subsequently placed on the market with settlement occurring outside two years of the deceased's death.
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 not sold within 2 years of the deceased's passing. Accordingly, you will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the 2 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 a 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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