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Edited version of your written advice
Authorisation Number: 1012977909318
Date of advice: 29 February 2016
Ruling
Subject: Application for an exercise of the Commissioner's discretion
Question 1
Will the Commissioner exercise the discretion provided under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two-year main residence exemption period until the property's settlement date?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 2015
The scheme commences on:
1 July 2014
Relevant facts and circumstances
You and your sibling are executors of the deceased's estate.
The deceased passed away in 20XX.
In your capacity as executors, the two of you arranged for the sale of the deceased's main residence.
The deceased and their spouse had owned and lived in the property since before September 1985. The deceased's spouse passed away after September 1985.
The deceased and their spouse had owned the property for a lengthy period of time. As a result, there were a large number of furnishings and other items that needed to be dealt with in order to prepare the property for sale. This process was complicated by the fact that no other family members resided nearby to help with this process. Therefore, the preparation of the estate took a considerable amount of time.
The property was listed for sale in 20XX at a price which you advise was slightly above the agent's anticipated market value.
You initially accepted an offer under your asking price, however the purchaser was unable to secure finance and that sale fell through.
The property was later sold for under its asking price with settlement occurring outside the two year main residence exemption period.
The property was sold with vacant possession and was not used for any income producing purposes since the deceased passed away.
Relevant legislative provisions
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 if 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 a property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract is signed).
In this case, the property was purchased by the deceased and their spouse prior to September 1985. When the spouse of the deceased passed away after September 1985, their pre-CGT interest of the property passed to the deceased and became a post CGT interest of the deceased. The deceased therefore held both pre and post CGT interests in the property at the time of their death.
This property was the deceased's main residence until they passed away. The property was not sold within the two year main residence exemption period. You will only be able to disregard the capital gain from the sale of the post CGT interest 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 the property's settlement date.