Extending the two year main residence exemption
When Tax Laws Amendment (2011 Measures No 9) Bill 2011 was given royal assent on 21 March 2012, it allowed certain discretions to the Commissioner of Taxation. One such discretion under ITAA 1997 s 118-195 allowed an extension of time for capital gains tax exemption for a dwellings of a deceased estate.
As a result, from the 2008/09 income year, the Commissioner could extend the deceased estate’s ownership of a main residence longer than two years.
That is, the dwelling that was the deceased’s main residence just before their death and was not used by them for producing assessable income.
The explanatory memorandum to that Bill gave a few circumstances in which the Commissioner may extend the time period for beneficiaries.
These circumstances include when:
- 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 of beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the two-year period, 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.
A recent private binding ruling issued by the Commissioner of Taxation has detailed a circumstance it considers to be outside the beneficiary’s control.
In the private binding ruling, released in February 2017, the deceased had purchased a property prior to September 1985. The property was the main residence of the deceased for the entire time of ownership. After probate was granted, the property mortgage liability and title was transferred to the beneficiaries:
To prevent the repossession by the mortgaging bank:
- The beneficiaries intended to sell the property between themselves.
- However, the transfer was delayed by the bank that was providing finance.
- The bank required demolition of a second residence, erected without council approval, on the property plus other repairs to be undertaken to the main residence.
- As a provision was made regarding the second residence in the deceased’s will, additional time was required in order to finalise the financial matters.
- The sale of the property between the beneficiaries was made soon after.
- The Commissioner deemed that a situation such as this was outside the beneficiaries’ control;
- And therefore an extension of the two-year exemption was allowed.
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