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Edited version of your written advice
Authorisation Number: 5010049071525
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) and allow an extension of time to the two year period until July 20XX?
Answer
Yes
This ruling applies for the following periods:
Financial year ending 30 June 20XX
Financial year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
The deceased acquired the property after September 1985.
The deceased passed away in 20XX. You are the trustee of their deceased estate.
The property was the main residence of the deceased and their spouse.
The property consisted of one house constructed in 20XX.
The house itself was not used to produce assessable income.
The deceased’s will provided that their spouse had the right to occupy the property for as long as they wished.
The spouse used the property as their main residence until they passed away in February 20XX.
Settlement occurred in July of the same year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 118-B
Income Tax Assessment Act 1997 section 118-110
Income Tax Assessment Act 1997 section 118-155
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 (for example, if the will is challenged). There must not be any other factors mitigating against exercising it.
In your case, you were unable to dispose of the dwelling during the two year period as the dwelling was occupied by the deceased’s spouse who had a right to occupy the dwelling under the deceased’s will. After the spouse passed away you were prompt in actioning the sale of the property.
In these circumstances the Commissioner will exercise his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time until July 20XX.