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Edited version of your written advice
Authorisation Number: 1051195082428
Date of advice: 23 February 2017
Ruling
Subject: CGT - Deceased Estate - two year exemption
Question
Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the dwelling and allow an extension of time?
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 died in 20XX
The deceased acquired the property before 20 September 1985
The property was first placed on the market for sale in late 20XX
The property was taken off the market early 20XX to obtain a rental tenancy
The property was placed back on the market mid 20XX after a tenant had been found and remained on the market from that time
Contract for sale signed late 20XX, purchaser requested an extended settlement
Settlement occurred on late 20XX
Relevant legislative provisions
Income Tax Assessment Act 1997 section 118-195
Income Tax Assessment Act 1997 subsection 118-195(1)
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 two 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 before 20 September 1985 and the property was not sold within two years of the deceased's date of death.
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 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 settlement date.
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