Edited version of private advice

Authorisation Number: 1051789098241

Date of advice: 10 December 2020

Ruling

Subject: Deceased estate - capital gains tax

Question

Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time to the two year period for you to dispose of your ownership interest in the dwelling and disregard the capital you made on the disposal?

Answer

Yes. Having considered your circumstances and the relevant factors, the Commissioner will allow an extension of time. Further information about this discretion can be found by searching 'QC 52250' on ato.gov.au

This ruling applies for the following period:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The deceased acquired a dwelling.

The dwelling passed to the deceased who was the sole beneficiary of the will of Parent A who died several years ago.

The deceased died between XX July 20XX and X August 20XX (the deceased).

The dwelling was the deceased main residence at the time of his death.

The dwelling's market value at the time of the deceased's death was estimated to be $XXX however three market valuations obtained valued it higher.

The average of these three valuations was higher than the estimated market value

The deceased died intestate.

The Succession Act provides a specific formula for the distribution of an intestate estate. The deceased Parent B was unknown.

This caused significant delays to the application for Letters of Administration because of the inability to prove the death of Parent B and/or the existence and death of any step siblings who might have had a claim on the estate, superior to that of the only known relatives.

The only known relatives were both residents and citizens overseas (known relatives).

The known relatives were excluded from applying to the Court for Letters of Administration of the deceased's estate. There was no other person capable of making application for Letters of Administration.

The situation was overcome by the known relatives appointing a solicitor, as their attorney to apply for Letters of Administration on their behalf.

In February 20XX Letters of Administration were granted to the solicitor as Attorney for the known relatives.

Shortly after, the dwelling was transferred into the name of the Administrator of the deceased's estate.

In the meantime, a couple of months after the deceased died, Mr and Mrs X who were neighbours of the deceased moved into the dwelling.

Mr and Mrs X alleged that there was an agreement reached between them and a representative of the overseas beneficiaries that they could purchase the dwelling for an amount well below market value. They moved into the vacant dwelling on the basis of the alleged agreement.

The Administrator disputed Mr and Mrs X's claims and after the failure of negotiations to sell the dwelling to Mr and Mrs X at the current market value, sought an order for vacant possession of the dwelling from the Supreme Court.

On XX July 20XX the Administrator filed the Statement of Claim in the Supreme Court.

Shortly after Mr and Mrs X's Defence and Cross Claim was filed in the Supreme Court. They sought an order for specific performance of the contract that they alleged existed.

The Administrator was successful and obtained the orders for possession of the dwelling and dismissal of Mr and Mrs X's cross claim.

Negotiations continued between the Administrator and Mr and Mrs X which resulted in the Administrator entering into a contract to sell the dwelling to them.

The sale contract was signed.

Settlement for the sale of the dwelling occurred three years after the date of the deceased's death and a capital gain was made on the disposal of the dwelling.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

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