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Edited version of your written advice
Authorisation Number: 1051199533422
Date of advice: 13 March 2017
Ruling
Subject: Capital gains tax - deceased estate - Commissioner's discretion
Question 1
Are you entitled to full main residence exemption under section 118-195 on the sale of the property?
Answer
Yes.
Question 2
Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time to the two year period?
Answer
No.
This ruling applies for the following period
Year ended 30 June 20ZZ.
The scheme commences on
1 July 20YY.
Relevant facts and circumstances
The deceased acquired a property in 19UU.
The deceased passed away in 20VV.
The dwelling has never been used to produce income.
The dwelling was the deceased's main residence.
Under the deceased's will, the deceased appointed child one, child two and child three, to be the executors and the beneficiaries of the estate.
A clause in the will allowed any beneficiary to use any property of the estate in any way that the trustee allowed.
Child one and child two lived at the dwelling with their late parent prior to the death of their parent, and both continued to live there until 20WW.
Child one moved out of the dwelling in 20WW.
Child three moved in the dwelling after the departure of child one in 20WW
Child two continued to live at the dwelling with a partner, and vacated the dwelling in 20XX
Child three continued to live there until 20ZZ.
The dwelling was sold in 20YY, and settled in 20ZZ.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 118-130(3)
Income Tax Assessment Act 1997 section 118-195
Income Tax Assessment Act 1997 subsection 118-195(1)
Question 1
Summary
You are entitled to full main residence exemption under section 118-195 on the sale of the property.
Detailed reasoning
Subsection 118-195(1) of the ITAA 1997 provides that a trustee of a deceased estate disregards a capital gain or loss from a dwelling that a deceased person acquired on or after 20 September 1985 if:
● The deceased's main residence when they died; and
● was not then being used to produce assessable income; and
● the trustee's ownership interest in the dwelling ends within two years of the deceased person's death, or
● from the deceased's death until the trustee's ownership interest ends (the trustee's ownership period), the dwelling was not used to produce income and it was also the main residence of one or more of the following persons:
● the spouse of the deceased immediately before death.
● an individual who had a right to occupy the dwelling under the deceased's will, or
● an individual who brought about the CGT event and the ownership interest in the dwelling had passed to that individual as beneficiary.
In your case the dwelling was not the main residence of the spouse of the deceased, and no beneficiary occupied the dwelling for the entire period from the date of the deceased's death until the dwelling was sold.
However, if the dwelling was occupied at all times since the deceased's death by an individual who had a right to occupy the dwelling under the deceased's will, you will be able to disregard any capital gain made on the sale of the dwelling.
Under the will of the deceased the clause of the will does not directly confer on any beneficiary a right to occupy the property; however the clause is broad enough that the possibility of interpreting the will in this way does exist.
In this case the interpretation of the clause is taken to provide the beneficiaries with a right to use the dwelling under the will, and accordingly, the clause amounts to a right to occupy the dwelling under the deceased's will.
Therefore, as all of the beneficiaries had a right to occupy the property under the will, and at all times since the deceased's date of death one or other of the beneficiaries were living at the dwelling, you may disregard a capital gain or loss made on sale of the dwelling.
Question 2
Summary
As you qualify for a full main residence exemption, there is no need for the Commissioner to exercise the discretion to extend the two year exemption period.
In any case your situation would not warrant a grant of the discretion as there was no impediment to disposing of the property at an earlier time.