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Edited version of your written advice
Authorisation Number: 1012991979038
Date of advice: 1 April 2016
Ruling
Subject: Request for Commissioner's discretion
Question 1
Will the Commissioner exercise the discretion provided under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two-year main residence exemption period by six months?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 2016
Year ending 30 June 2017
The scheme commences on:
1 July 2015
Relevant facts and circumstances
The deceased passed away in 20XX.
The deceased estate includes a main residence that was purchased after 20 September 1985. The land on which the main residence sits is greater than two hectares.
One of the beneficiaries of the estate has challenged the will through the courts.
Due to this litigation it is not likely that the estate will be finalised within two years of the deceased's passing.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Section 118-195
Income Tax Assessment Act 1997 - Section 118-120
Reasons for decision
Subsection 118-195(1) of the Income Tax Assessment Act 1997 states that if you own a dwelling in your capacity as trustee of a deceased estate (of 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 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. The deceased therefore held the property as a post CGT asset. The property was treated as the deceased's main residence until they passed away. You advise that the property will not be sold within two years of the deceased's death. You will only be able to disregard the capital gain from the sale 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 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 of six months.