Edited version of private advice

Authorisation Number: 1052420224319

Date of advice: 21 July 2025

Ruling

Subject: Deceased estate 2 - year discretion

Question

Will the Commissioner exercise his discretion under section 118-195 of Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time for you to dispose of your ownership interest in the dwelling and disregard the capital gain or capital loss you made on the disposal?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

DDMM20YY

Relevant facts and circumstances

On DDMMYYYY, the deceased passed away. At the time of passing the deceased was a widow.

The property situated at XX (the property) was the family home and was originally built for the deceased in the 19YYs (pre-CGT).

The property is less than 2 hectares.

The property was the deceased's main residence until they passed away.

The property was never used for the purpose of producing assessable income during the deceased's ownership.

The property was vacant from the time of the deceased passing until the property was sold.

You have provided a copy of the deceased's Will.

There is no right to reside within the Will.

The will appointed two of the deceased's children as the executors.

The deceased had three children, child 1, child 2 and you child 3. Within the will the estate was to be split in equal shares.

On DDMMYYYY probate was applied for and probate was granted on DDMMYYYY, one month later, by the Supreme Court.

Inventory of the deceased was provided.

You have not advised when the property was first listed for sale.

On DDMMYYYY, the property was transmitted to the executors as joint tenants.

On DDMMYYYY the property was transferred to the beneficiaries, in equal shares as tenants in common.

The sales inspection report and auction agency agreement between the beneficiaries and the agent XX XX for the exclusive selling rights of the property for a period from DDMMYYYY to DDMMYYYY, was signed by the beneficiaries on DDMMYYYY.

The auction agency agreement, at paragraph XX states that the principal has thoroughly inspected the property prior to sale and that the property is: without risk to health and safety.

On DDMMYYYY, the property was sold by auction with settlement date DDMMYYYY. The purchaser did not settle on the due date.

On DDMMYYYY one of the executors and beneficiary's passed away. The purchaser was notified one of the owners had passed away.

You have advised that child 3's spouse applied to the Supreme Court for grant of administration, however you do not know when this was applied for. You also do not know how long it took for the Supreme Court to grant the spouse the letter of administration.

On DDMMYYYY, the purchaser's solicitor advised that they considered you had broken the contract due to child 3's death and they were suing you to recover their costs, including legal costs and the cost associated with preparation of dual occupancy development application (architectural fees, surveying, reports, certifier costs).

On DDMMYYYY the court case commenced by a statement of claim.

You were not able to resell the property while the court case was active because the executors of the estate were seeking specific performance of the contract i.e. the settlement of the property. You were also claiming that the contract was still valid, and the purchaser could not rescind the contract.

If the property was resold during the court case, then these causes of action could not have been claimed.

The purchaser was also seeking that the deposit be returned to them and for the estate to pay all of their costs in relation to the claim.

On DDMMYYYY, the court case was settled.

On DDMMYYYY a private offer was made for the property. The sales contract was prepared on DDMMYYYY.

On DDMMYYYY you exchanged sale contracts for the second time.

On DDMMYYYY, the property settled.

The estate has been fully administered.

Reasons for delay

You have stated in relation to the delay of listing the property for sale, was due to one of the requests of the deceased that the property not be sold.

The impact of Covid-19 and the ability to list a property for sale at that time.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Reasons for decision

A capital gain or capital loss may be disregarded where a capital gains tax event happens to a dwelling if you owned it as the trustee or beneficiary of the deceased estate.

For a dwelling acquired by the deceased after 20 September 1985, that was the deceased's main residence and not used to produce assessable income just before their death, you will be entitled to a full exemption if your ownership interest ends within two years of the deceased's death. Your ownership interest ends at the time of settlement of the contract of sale.

In your case, the deceased acquired the property before 20 September 1985 and the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of:

   • the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or

   • an individual who had a right to occupy the dwelling under the deceased's will; or

   • if the CGT event was brought about by the individual to whom the ownership interest passed as a beneficiary - that individual.

After the deceased passed away, you owned the property as a beneficiary of the estate. The property was the deceased's main residence until just before they passed away and was not used to produce assessable income at that time.

The property sale settled more than two years after the deceased's death. Therefore, you require the Commissioner's discretion to extend the two-year period to be eligible for an exemption.

Practical Compliance Guideline PCG 2019/5 The Commissioner's discretion to extend the two-year period to dispose of dwellings acquired from a deceased estate provides guidance on factors we consider when deciding whether to grant the discretion.

Paragraph 3 of PCG 2019/5 provides that we will allow a longer period where the dwelling could not be sold and settled within two years of the deceased's death due to reasons beyond your control that existed for a significant portion of the first two years.

Paragraph 14 of PCG 2019/5 explains we weigh up all of the factors (both favourable and adverse). Paragraph 17 of PCG 2019/5 provides a list of other factors that may be relevant to the exercise of the Commissioner's discretion which includes the sensitivity of your personal circumstances.

Your contentions

You have provided in your ruling application the reasons for the delay in selling the property.

   • One of the reasons for the delay in listing the property for sale this was due to one of the requests of the deceased that the property not be sold. This caused some emotional difficulty for the children of the deceased.

   • Probate was delayed due to the deceased's assets being complex with a varied asset pool/structure which included numerous small holdings across many different institutions that took months to reconcile and close.

   • The property was also not fit for sale and needed repairs before it could be listed for sale.

   • During the Covid-19 period, it was difficult to engage contractors due to movement restrictions and workforce shortages.

   • The Covid-19 closedown interfered and interrupted real estate activity through the period.

Consideration of your circumstances

In this case the Commissioner has decided not to exercise his power to extend the two-year period. We have taken the following into consideration when making our decision:

We acknowledge that the structure of the deceased estate took some time to obtain probate and there was Covid-19 restrictions on real estate activities. However, the deceased passed away on the DDMMYYYY and the property was first sold on DDMMYYYY this is XX months after the deceased's passing.

Covid-19 started in state on the DDMM2020 this is XX months after the deceased passing therefore Covid-19 would have affected the sale for a period of XX months.

As per PCG 2019/5 paragraph 3. Generally, we will allow a longer period where the dwelling could not be sold and settled within 2 years of the deceased's death due to reasons beyond your control that existed for a significant portion of the first 2 years.

Paragraph 11 states during the first 2 years after the deceased's death, more than 12 months was spent addressing one or more of the circumstances described in paragraph 12 of this guideline.

Paragraph 12 states one or more of the following circumstances must have taken more than 12 months to address:

   • the ownership of the dwelling, or the will, is challenged

   • a life tenancy or other equitable interest given in the will delays the disposal of the dwelling

   • the complexity of the deceased estate delays the completion of administration of the estate

   • settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of your control, or

   • restrictions on real estate activities imposed by a government authority in response to the COVID-19 pandemic.

The information and documentation provided does not support that the deceased's estate was of a complex nature. Therefore, this is not a factor that the Commissioner would take into consideration when making the decision on whether to exercise the discretion to extend the two-year period to dispose of the property.

We also considered the time it took for you to place the property on the market was DDMMYYYY when you signed an auction agreement, which shows the property was not put on the market until around this time, which is XX months after the deceased's passing. After the deceased passed in MMYY Covid-19 lockdowns affected around XX months of the two-year period covered by section 118-195 of the ITAA 1997.

Conclusion

The Commissioner's discretion is meant to be limited to situations where the owner is effectively prevented from selling the property. The intention of the two-year period is to allow the orderly and timely sale of deceased estate property.

Having considered the relevant facts, we will not apply the discretion under subsection 118-195(1) of the ITAA 1997 to allow an extension to the two-year time limit. Therefore, the normal capital gains tax (CGT) rules will apply to the disposal of the property. You should note that the first element of your cost base for the property is its market value on the deceased's date of death. The cost of repairs can also be included in the cost base of the property. You are also entitled to the 50% CGT discount in relation to the property.