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CGT exemption for main residence from deceased estate

Posted by Northadvisory on August 28, 2018

The ATO has released a draft practical compliance guideline providing a safe harbour approach for beneficiaries or trustees of deceased estates seeking to claim the CGT exemption for disposal of a deceased persons’s main residence within two years of their death.

 

This exemption in s 118-195 of ITAA 1997 also permits the Commissioner a discretion to allow a period longer than two years to obtain the exemption. The draft guideline also outlines the factors the Commissioner will consider when deciding if this discretion should be exercised. The safe harbour compliance approach is intended to allow taxpayers to manage their tax affairs as if the discretion has been exercised.

 
Factors relevant to exercise discretion
The Commissioner will generally allow a period longer than two years if the reasons for not disposing the dwelling were beyond the control of the beneficiary or trustee and such reasons existed for a significant portion of the first two years. All factors are weighed up in the context of the circumstances of the case and while the circumstances are more important than the length of delay, the amount of any potential capital gain or loss is not a relevant factor.

 
Safe harbour compliance approach
The draft guideline outlines the following five conditions that must be satisfied before a taxpayer can treat the discretion as being exercised:

  • in the first two years, more than 12 months was spent addressing a challenge to a will or ownership of the dwelling, a life or other equitable interest delayed the disposal, complexity of the estate delayed administration or settlement of a sale contract was delayed due to circumstances outside the taxpayer’s control
  • the dwelling is listed for sale as soon as practically possible after the above circumstances are resolved
  • the sale is completed within six months of the dwelling being listed for sale
  • no adverse factors exist eg activities undertaken to improve the sale price of the dwelling, and
  • the longer period for the discretion to be exercised is not more than 12 months.

The guideline also illustrates the ATO’s preliminary approach to the safe harbour in a number of examples.

If you have questions on any of the above issues raised, please do not hesitate to contact us.

Kim Edwards
Chartered Tax Adviser
Chartered Accountant
T: 02 9984 7774
E: kime@northadvisory.com.au