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Edited version of private advice
Authorisation Number: 1012643659818
Ruling
Subject: Capital gains tax - deceased estate - extension of the two year time limit
Question 1
Will the Commissioner exercise his discretion to extend the two year main residence.
This ruling applies for the following period
Year ended 30 June 2005
Year ended 30 June 2006
Year ended 30 June 2007
Year ended 30 June 2008
Year ended 30 June 2009
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
The scheme commenced on
1 July 2004
Relevant facts and circumstances
You received a property via a deceased estate that was used as the deceased's main residence for the entire period of ownership until death.
Due to circumstances beyond your control you were unable to sell the property within the two year time limit to access the main residence exemption for the property.
The property was purchased prior to 20 September 1985 by your relatives as joint tenants and was used as their main residence until one of them passed away after 20 September 1985 at which time the property passed into the surviving joint tenant's name 100%.
The surviving joint tenant continued to use the property as a main residence until death in excess of two years ago.
You were the sole beneficiary of the deceased's will of which the property was the sole asset (aside from a small amount of cash).
The estate was challenged by relatives and therefore the estate was unable to transfer ownership of the estate assets to you until all legal proceedings had ceased.
The estate transferred ownership of the property to you in excess of two years after the deceased's death.
You disposed of the property as soon as was practicable.
Your arguments and references
But for the legal proceedings and the delay in transfer of the property, you would have sold the property within the two year time frame and accessed the main residence exemption.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-195
Explanatory Memorandum for the Tax Laws Amendment (2011 Measures No 9) Act 2012
Reasons for decision
Please note that all references are to the Income Tax Assessment Act 1997.
Subsection 118-195(1) 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) 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:
n the ownership of a dwelling or a will is challenged;
n the complexity of a deceased estate delays the completion of administration of the estate;
n 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
n settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control.
Consequently, the Commissioner will exercise his discretion under section 118-195 on the grounds that the estate was challenged by the deceased's relatives and but for the legal proceedings and the delay in the transfer of the property to you, you would have sold it within the two year time frame.