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Ruling

Subject: capital gains tax main residence exemption extension of time

Question

Will the Commissioner exercise his discretion under subsections 118-195(1) and 118-200(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two year time period to dispose of the dwelling?

Answer:

Yes

This ruling applies for the following period

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

The scheme commenced on

1 July 2010

Relevant facts and circumstances

The deceased passed away sometime in 2011.

Probate of the Will of the deceased was granted to the executors by the Supreme Court a few months after the date of death.

The probate was re-sealed in the Supreme Court approximately one year later.

At the date of the deceased's death, she was registered as the owner of her home.

Several years ago, the deceased moved to a nursing home where she resided until the date of her death.

A few days after the deceased moved to the nursing home, her child occupied the dwelling and continues in occupation. The right to occupy has been disputed since then.

The executors, as the then attorneys of the deceased under enduring power of attorney, commenced proceedings in the District Court to evict the child from the dwelling. The proceedings were unresolved at the date of the deceased's death.

The executors have commenced proceedings in the Supreme Court to have the child evicted from the dwelling in the hope that they may be able to sell the dwelling.

The child has commenced their own proceedings in the same Supreme Court to claim that they hold the property under a constructive trust, or testamentary promise from the deceased.

You do not believe that either set of proceedings will be resolved before the second anniversary of the death of the deceased, and request a further two year extension for disposal of the property.

In the course of interlocutory proceedings in the District Court action, the Court directed the child to pay income for his occupation into the Suitor's Fund of the District Court pending a determination of the outcome of proceedings. The child has not complied with that order, since the date of the deceased's death. The entitlement to the monies in the Suitor's Fund of the Court is yet to be determined.

You provide that the property has not been used either by the deceased in their lifetime, or after their death to produce assessable income.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 118-195(1)

Income Tax Assessment Act 1997 Section 118-200

Income Tax Assessment Act 1997 Subsection 118-200(3)

Income Tax Assessment Act 1997 Section 118-145

Reasons for decision

Summary

The Commissioner will exercise the discretion to extend the two year time period for the disposal of the dwelling under subsections 118-195(1) and 118-200(3) of the Income Tax Assessment Act 1997 (ITAA 1997).

This is because the ownership and occupation of the dwelling is currently being challenged in the courts and the Commissioner finds this to be an acceptable reason to allow the extension of time.

Detailed reasoning

Tax Laws Amendment (2011 Measures No. 9) Act 2012, which received Royal Assent on 21 March 2012, gives the Commissioner discretion to extend the time period in subsections 118-195(1) and 118-200(3) 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.

Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that if the deceased died on or after 20 September 1985 and had acquired the dwelling on or after 20 September 1985 and you have an ownership interest in a dwelling that passed to you as a beneficiary in a deceased estate, or you have owned it as trustee of a deceased estate, you disregard any capital gain or capital loss you make from a capital gains tax (CGT) event that happens to the dwelling if the following applies:

· you disposed of your ownership interest within two years of the deceased's death (or a longer period allowed by the Commissioner), and

· just before the deceased's death:

o the dwelling was their main residence; and

o it was not then being used to produce assessable income.

Where a trustee or beneficiary of a deceased estate cannot access a CGT exemption under section 118-195 of the ITAA 1997, section 118-200 of the ITAA 1997 may provide a partial exemption.

In particular, subsection 118-200(3) of the ITAA 1997 ensures that for post-CGT dwellings, where the trustee or beneficiary's ownership interest ends within two years of the deceased's death (or a longer period allowed by the Commissioner), the period between the deceased's death and when their ownership interest ends can be ignored when calculating a capital gain or capital loss.

The Commissioner would be expected to exercise 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.

Section 118-145 of the ITAA 1997 provides that the main residence of an individual can continue to be regarded as the main residence of the individual despite the fact that the individual no longer lives in it. If the dwelling is not used to produce income (for example, you leave it vacant, or use it as a holiday home) you can treat the dwelling as the main residence for an unlimited period. If the dwelling is used to produce income (for example, you rent it out or it is available for rent) you can choose to treat it as your main residence for up to six years after you cease living in it. In addition, if the deceased was not living in the home at the date of their death, they or their trustee may have chosen to continue to treat it as their main residence. This may happen if, for example, the person moved to a nursing home.

In your case, the deceased resided in the dwelling until they moved to a retirement home and subsequently passed away. The dwelling was not used to produce assessable income during this time. Therefore, you may continue to treat the dwelling as the main residence of the deceased until the date of their death.

You have stated that the ownership and occupation of the dwelling is currently being challenged in the courts and therefore you will be unable to dispose of the dwelling within the two-year time period in order to take advantage of the CGT main residence exemption that is available for trustees of deceased estates.

However, as this is considered to be a reasonable explanation for the delay in the disposal of the dwelling, the Commissioner will exercise his discretion to extend the two year time period by a further two years.