Edited version of your written advice

Authorisation Number: 1051373041956

Date of advice: 16 May 2018

Ruling

Subject: Capital gains tax - deceased estate – Commissioner’s discretion to extend the two year period – main residence exemption

Question

Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the dwelling on the property and allow an extension of time to the two year period to the date of settlement of the property?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 201X

The scheme commences on:

1 July 201X

Relevant facts and circumstances

You have provided a copy of the following documentation to support your application and these documents are to be read with and forms part of your application for the purpose of this ruling:

● letter requesting exemption for Capital Gains Tax (CGT) dated May 201X.

● copy of the Will

● copy of the Deed of Family Arrangement

● copy of the Deed of Variation Family Arrangement

● copy of Supreme Court Letter of Administration

The deceased acquired the property after 20 September 1985 and the property was used as his main residence at all times and just before his death

The deceased passed away in 201X

The Will of the deceased provided Individual A the Right to Reside in respect of the property

Individual A renounced their Right to Reside in the property in April 201X

The Executor named in the Will renounced his right to obtain a Grant of Probate of the Will in November 201X

The residuary beneficiaries were required to petition the Supreme Court and were granted Letter of Administration with the Will in the Supreme Court of State A in December 201X, being 15 months after the date of death

The residuary beneficiaries entered into a Deed of Family Arrangement in May 201X

The property could not be sold until the Deed of Family Arrangement was executed by all residuary beneficiaries

There were significant legal disputes in respect of setting the terms of the Deed of Family Arrangement

The residuary beneficiaries entered into a variation to the Deed of Family Arrangement in August 201X

The property has not been used by the Estate for income producing purposes at any time since the date of death

The Administrators of the Estate entered into a contract to dispose of the property in February 201X

The contract of sale for the property was settled in April 201X

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-195.

Reasons for decision

Subsection 118-195(1) of the 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), or

● from the deceased's death until the trustee's ownership interest ends, the dwelling was the main residence of one or more of the following persons:

(a) the spouse of the deceased immediately before death;

or

(b) an individual who had a right to occupy the dwelling under the deceased's will;

or

(c) an individual who brought about the CGT event and the ownership interest in the dwelling passed to that individual as beneficiary.

In this case, the property was purchased by the deceased before 20 September 1985 and was their main residence until they passed away.

The property was not sold within two years of the deceased’s date of death. The property was not a main residence of a relevant person under section 118-195 of the ITAA 1997.

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 (for example, if the will is challenged). There must not be any other factors mitigating against exercising it.

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 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

In your case, the delay in disposing of the dwelling within the two year time period was due to a legal issue that arose concerning the interpretation and validity of the deceased’s will, resulting in the delay in probate being granted, additionally delays were encountered in dealing with the discharge of the mortgage and from an uncooperative beneficiary.

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 until the date of settlement of the property.