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Edited version of private advice

Authorisation Number: 1051638017803

Date of advice: 05 March 2020

Ruling

Subject: Commissioner's discretion to extend the two year period - main residence exemption

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 until XX/XXXX/2020?

Answer

Yes

This ruling applies for the following period:

Period ending 30 June 2020

The scheme commences on:

1 July 2019

Relevant facts and circumstances

The deceased passed away on XX/XX/2015.

The deceased resided in a property as a main residence.

The property was not then being used for the purpose of producing assessable income.

The Last Will of the deceased gave a 'Right to Reside' in the property to another party.

This other party resided in the property until XX/XXXX/2018.

At this time they vacated the property and entered a nursing home.

A Family Provision claim was raised on XX/XXXX/2016 by a stepchild of the deceased.

Court orders relating to this Family Provision claim were issued on XX/XXXX/2018.

The Public Trustee received instruction to list the property for sale by auction on XX/XXXX/2019.

The property was listed for auction on XX/XXXX/2019 however was passed in due to the bid not meeting the reserve price.

The property was sold by private treaty on XX/XXXX/2020.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 subsection 118-130(3)

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 provides a capital gains tax (CGT) exemption to a beneficiary or trustee of a deceased estate where a CGT event happens to a dwelling (or an ownership interest in a dwelling) acquired from a deceased estate.

An exemption is provided where the beneficiary or trustee's ownership interest in the dwelling ends within two years of the deceased's death and just before the deceased's death (for pre-CGT dwellings) the dwelling was their main residence.

The Commissioner has discretion to extend the two year time period in subsection 118-195(1) of the ITAA 1997 where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death. This discretion may be exercised in situations such as where:

1.    the ownership of a dwelling or a will is challenged;

2.    the complexity of a deceased estate delays the completion of administration of the estate;

3.    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

4.    settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control.

In your case, the delay in disposing of the property is due to two factors:

·         A right to reside granted to another party which ceased upon the other party entering a nursing home on XX/XXXX/2018, and

·         A Family Provision claim against the estate finalising on XX/XXXX/2018.

As a result the settlement occurred after the two year period.

Having considered the relevant facts, the Commissioner will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit until XX/XXXX/2020.

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