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Edited version of your written advice
Authorisation Number: 1013071446300
Date of advice: 15 August 2016
Ruling
Subject: Capital gains tax exemption
Question 1
Will the Commissioner exercise the discretion under section 118-195 of the Income Tax Assessment Act 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 20XX.
The deceased's parent purchased a property (the property), which was the parent's main residence.
The property was passed to the deceased on the date of the parent's death in 200X and the property was then the deceased's main residence up until he/she was totally incapacitated in 20XX and he/she was sent to a nursing home.
The deceased's continued to treat the property as their main residence up until his/her death.
In 20XX there was a dispute between the deceased's powers of attorney and his/her financial management was passed to the States Trustee and Guardian.
The States Trustee and Guardian's power to act ceased on the deceased's date of death.
There have been multiple legal proceedings regarding the Estate from 20XX - 20XX.
An order for the settlement of the Estate was granted in 20XX, determining the beneficiaries of the Estate.
The contract for the sale was settled 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
Subsection 118-195(1) of the Income Tax Assessment Act 1997 (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).
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 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
Application to your circumstances
In your case, there were significant delays in the completion of administration of the estate of both the deceased and the deceased's parent. Due to the will being challenged, the beneficiaries of both estates were not known until 20XX. These delays prevented the sale of the property within two years.
Having considered the relevant facts, the Commissioner is able to apply the discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit until 20XX.
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. Therefore, you can disregard any capital gain or loss that arises as a result of the disposal of the property.