| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1012977068485
Date of advice: 26 February 2016
Ruling
Subject: Capital gains tax - deceased estate - main residence exemption
Question 1
Will the Commissioner exercise 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?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 2016
The scheme commences on:
1 July 2015
Relevant facts and circumstances
The deceased died in the 20VV-WW financial year.
A corporate trustee was appointed in 20WW to administer the deceased's estate when the named executor was unable to fulfil the role.
The deceased purchased the property in the 19XX-YY financial year.
The property was the main residence of the deceased when they passed away.
No one has lived in the property since the deceased passed away.
The dwelling was not used to produce assessable income, from the deceased's death up until you disposed of your ownership interest.
The property was sold at auction and settled in the 20ZZ-AA financial year.
The property sale settled more than two years after the deceased's death.
There were multiple reasons for the delay in selling the property. These included:
• the trustee company had difficulties in obtaining instructions from the beneficiaries due to the strained relationships.
• the property needed extensive improvements which took time in order to have the property brought to a reasonable state to present at auction
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 and
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 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 purchased by the deceased after 20 September 1985 and was their main residence until they passed away in the 20VV-WW financial year. The property was not sold within 2 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 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
There were multiple reasons for the delay in selling the property. These included:
• the trustee company had difficulties in obtaining instructions from the beneficiaries due to the strained relationships.
• the property needed extensive improvements which took time in order to have the property brought to a reasonable state to present at auction
These delays prevented you from disposing of the property within the two year time limit.
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 sale of the property was settled.