Issue
Can the Commissioner extend the two year period in the table in paragraph 118-195(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow a trustee of a testamentary trust to obtain a full main residence exemption on the disposal of the deceased's main residence?
Decision
No. The Commissioner does not have any discretion to extend the two year period referred to in the table in paragraph 118-195(1)(b) of the ITAA 1997. Consequently, only a partial main residence exemption will be available under section 118-200 of the ITAA 1997 if the trustee sells the deceased's main residence more than two years after their death.
Facts
An individual acquired a dwelling in the 1989-90 income year. The dwelling was the individual's main residence from the start of their ownership period until they died in the 1999-2000 income year.
By their will the deceased left the property on trust for their children in equal shares.
The trustee of the deceased individual's estate sold the dwelling three years after the date of death and made a capital gain. The sale of the dwelling was delayed due to litigation involving the estate.
The trustee requested that the Commissioner extend the two year exemption period in this case so that the capital gain would be disregarded.
The dwelling was not occupied during the time between the deceased's death and when the property was sold.
Reasons for Decision
Section 118-195 of the ITAA 1997 provides when a capital gain or capital loss from certain CGT events that happen in relation to a dwelling in which the trustee of a deceased estate has an ownership interest can be disregarded in full.
For a dwelling acquired by the deceased on or after 20 September 1985 which was the deceased's main residence just before they died and, at that time, was not being used for the purpose of producing assessable income, the trustee will be entitled to a full exemption if: • the trustee's ownership interest ends within two years of the deceased's death or • the dwelling was, from the deceased's death until the trustee's ownership interest ends the main residence of one or more of: - the spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased) - an individual who had a right to occupy the dwelling under the deceased's will, or - an individual beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary.
In this case, the trustee disposed of the dwelling some three years after the deceased's death. Section 118-195 of the ITAA 1997 does not confer on the Commissioner any discretion to extend the two year exemption period referred to in that section. Further, since the dwelling was not occupied by a relevant individual after the deceased's death, the alternative basis of exemption in the section does not apply.
Consequently, a full main residence exemption will not be available to the trustee in respect of the capital gain made from the disposal of the deceased's main residence. The trustee will however be entitled to a partial exemption under section 118-200 of the ITAA 1997.