Edited version of your written advice

Authorisation Number: 1013058854186

Date of advice: 25 July 2016

Ruling

Subject: Capital gains tax

Question 1

Will the Commissioner of Taxation exercise his discretion to extend the 2 year main residence exemption for the dwelling acquired from a deceased estate under section 118-195 of the ITAA 1997?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The deceased died in 20XX.

The deceased died intestate.

Probate was granted to State Trustees Limited in 20XX.

The beneficiaries of the deceased who all resided overseas had to be located, identified and confirmed through genealogical searches which delayed the administration of the estate.

The deceased inherited a property.

The property was transferred to the deceased from a relative who acquired the property in 19XX, who used it as their main residence.

The deceased did not have an ownership interest in any other property and treated the property as their main residence for the entire ownership period.

After the deceased passed away the property was vacant and was never used for income producing purposes until it was sold.

There was a further delay in the administration of the estate due to a Testators Family Maintenance Claim which was resolved in 20XX

Settlement occurred for the property in 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10,

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 subsection 118-195(1)

Reasons for decision

The capital gains provisions allow for concessional treatment to be given to a dwelling that was owned by a deceased person if the executors of the deceased person's estate sell that dwelling within two years of the date of death.

Any capital gain or capital loss made on the sale of such a dwelling is disregarded if the dwelling was:

• Acquired by the deceased before 20 September 1985, or

• The deceased's main residence when they died.

The Commissioner has the discretion to extend the two year period. This extension is generally only granted where the executors are merely arranging the ordinary sale of the dwelling and the cause of the delay is beyond their control.

The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion to extend the time period in which you can dispose of the property:

• 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 (eg 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 reasons outside the beneficiary or trustee's control.

In your case, the delay in disposing of the dwelling was caused to the delay in approval of probate, the challenge of locating the beneficiaries, and due to a Testators Family Maintenance claim. Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.

As a result of extending the two year time limit, you will satisfy all of the conditions contained in section 118-195 of the ITAA 1997. Accordingly, you can disregard any capital gain or loss that arises as a result of the disposal of the property.