Edited version of private advice

Authorisation number: 1051758149348

Date of advice: 14 October 2020

Ruling

Subject: Capital gains tax - deceased estate extension on two year time period

Question

Will the Commissioner allow an extension of time to DD/MM/YYYY for you to dispose of your ownership interest in the dwelling (the property) and disregard the capital gain you made on the disposal?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2020

The scheme commenced on

1 July 2012

Relevant facts and circumstances

The deceased acquired the property before September 1985.

You obtained a valuation for the property soon after the deceased's passing.

You cleared out the property over a couple of years and painted it in readiness to sell.

A real estate agent advised that the dwelling on the property was worthless as it needed work.

You decided to carry out works on the property.

A family member showed interest in the property however they backed out on the proposal after a considerable period of time.

As the dwelling was unoccupied it was broken into on two occasions causing damage to the property. You paid to repair the building following each break-in.

Your spouse suffered a number of illnesses over the next few years and your attention was spent caring for them.

You decided to try and sell the property once again and a neighbour of the property requested that they have first option to purchase the property and asked you to hold it for a period after which they would make an offer.

The neighbour made an offer on the property however it was considered too low and you placed the property on the market.

You accepted an offer but this offer unfortunately fell through.

The property was advertised again with a number of offers received.

You accepted one the offers and a contract for sale was signed with settlement occurring on DD/MM/YYYY.

You were not aware of the two year time limit to sell the property to be able to disregard the capital gain made on the sale.

Relevant legislative provision

Income Tax Assessment Act 1997 section 118-195(1)

Reasons for decision

A capital gain you make from a capital gains tax (CGT) event that happens in relation to a dwelling or your ownership interest in it is disregarded in certain circumstances, including when:

·   you are an individual and the interest passed to you as a beneficiary in a deceased estate

·   the deceased acquired the ownership interest before 20 September 1985, and

·   you dispose of the dwelling within two years of the deceased's death, or within a longer period allowed by the Commissioner (subsection 118-195(1) of the ITAA 1997).

You satisfy the above conditions except that you did not dispose of the dwelling within two years of the deceased's death. Therefore, you will only be able to disregard the capital gain you made on the sale of the dwelling if the Commissioner extends the two year period.

In considering whether to extend the two year period, the Commissioner weighs up all of the factors (both favourable and adverse) having regard to the facts and circumstances of each case.

Factors that weigh in favour of the Commissioner allowing a longer period include:

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

·   a life 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, or

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

Factors that weigh against the Commissioner allowing a longer period include:

·   waiting for the property market to pick up before selling the dwelling

·   delay due to refurbishment of the house to improve the sale price

·   inconvenience on the part of the trustee or beneficiary to organise the sale of the house, or

·   unexplained periods of inactivity by the executor in attending to the administration of the estate.

Other factors that may be relevant to the exercise of the Commissioner's discretion include but are not limited to:

·   the sensitivity of your personal circumstances and/or of other surviving relatives of the deceased

·   the degree of difficulty in locating all beneficiaries required to prove the will

·   any period the dwelling was used to produce assessable income, and

·   the length of time you held the ownership interest in the dwelling.

How much weight that is given to each factor depends upon the circumstances of each particular case. The circumstances that caused the delay in disposing of the ownership interest are more important than the length of the delay. A lack of awareness or knowledge of the two year time limit or the amount of any potential capital gain or loss are not relevant to whether the discretion is exercised.

The Commissioner will not allow a longer period for even a very short delay beyond two years if there are no relevant circumstances present. Likewise, a lengthy delay will not prevent the Commissioner from allowing a longer period where relevant circumstances caused the delay and persisted for the overwhelming majority of the total period.

The Commissioner empathises with your situation and it is acknowledged that there were a number of factors that contributed to the delay in you disposing of the property that were outside your control including an expectation that a family member would purchase the property, other offers falling through and the illnesses of your spouse. However, there were considerable periods of inactivity in regard to trying to sell the property.

Having regard to your circumstances and the relevant factors the Commissioner is unable to extend the two year time limit for you to sell the property and disregard the capital gain made on the sale.

The normal capital gains tax rules will apply to the disposal of the property.

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