Edited version of your written advice

Authorisation Number: 1012994261182

Date of advice: 8 April 2016

Ruling

Subject: Request for Commissioner's discretion

Question

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 until the settlement date of the property?

Answer

No.

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 purchased property with their former spouse before 20 September 1985.

The property was the main residence of the deceased until they passed away.

You were the named sole beneficiary of the deceased estate.

In addition, the certificate of title of the property was still in joint names with the deceased's spouse (although there was dissolution of the marriage approximately 30 years prior). This incurred extra time to resolve and a cost. A settlement fee was negotiated.

The property has not been used to produce assessable income.

The property is expected to be sold with settlement occurring outside the two year main residence exemption period.

Relevant legislative provisions

Income Tax Assessment Act 1997 - Section 118-195

Income Tax Assessment Act 1997 - Section 128-50

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 (or if it passed to you as a beneficiary of an estate), then you are exempt from capital gains tax (CGT) 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 and their former spouse as joint tenants prior to September 1985. The deceased therefore held immediately before their death 50% of the property as a pre-CGT asset.

Section 128-50 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the rules on what happens to a CGT asset when it is owned by joint tenants and one of them passes away. If a joint tenant dies, on that date their interest in the asset is taken to pass to any other surviving joint tenants as if their interest is an asset of the deceased estate and the remaining joint tenants are beneficiaries. In your case, the deceased's ownership interest in the property passed to their former spouse on the date of their death. As a result, the deceased's former spouse would have been considered to be the sole owner of the property after the deceased passed away.

You then entered into an agreement with the deceased's former spouse for the transfer of the property to you in return for a settlement fee. Because you entered into an agreement for the property and did not directly receive it from the deceased estate, you are not deemed to have acquired the property as a beneficiary of a deceased estate, and an exemption from the CGT payable on the transfer of the property is not available under section 118-195 of the ITAA 1997.

The Commissioner is therefore unable to exercise his discretion to extend the two year main residence exemption period because you do not meet the requirements of the other legislative provisions.