Edited version of private advice

Authorisation Number: 1052038416829

Date of advice: 4 October 2022

Ruling

Subject: Commissioner's discretion - deceased estate

Question

Will the Commissioner exercise the discretion to allow an extension of time for you to dispose of your ownership interest in the property 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 commences on:

1 July 20XX

Relevant facts and circumstances

After 1985. the deceased acquired the property. The deceased owned another unit (the unit). Both properties were mortgaged with Bank A.

The property was the main residence of the deceased just before they passed away and was not used to produce assessable income at that time.

After 1985, the deceased passed away. The deceased's will named you the executor of the estate.

Probate was granted.

You raised a complaint with Bank A, had several meetings, emails and phone calls with managers, customer relations and customer advocates. You escalated your complaint to other parties.

Bank A offered you a sum of money to close the complaint. You rejected the offer.

You were unsuccessful with your complaints and appeals.

There were periods where COVID lockdowns were in place.

After your complaint was closed, you arranged repairs and prepared the unit for sale.

Shortly after, the unit was sold.

After the unit was sold, you visited the property for the first time since the deceased's death and noted it needed a major clean up and extensive repairs.

You commenced cleaning the property as you were unable to arrange tradespersons to attend to repairs and cleaning.

There were periods when you were preparing the house for sale when the area experienced significant flooding. Access to the property was limited and you had further difficulties sourcing tradespersons.

The deceased's family visited from overseas and discussed plans to sell or keep the property.

Shortly after, you contacted a real estate agent.

The real estate agent listed the property and conducted open houses.

The property sold and the sale settled more than 18 months after the end of the two-year period.

You received a letter from your complaint handler confirming you could have sold the properties whilst the complaint was taking place.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-195

Reasons for decision

Question

Will the Commissioner exercise the discretion to allow an extension of time for you to dispose of your ownership interest in the property and disregard the capital gain or capital loss you made on the disposal?

Summary

No.

The most significant factor that delayed the sale of the property during the first two years was your decision not to sell whilst you had open complaints.

Your decision to wait until the complaint was closed to begin plans to sell the property was a decision within your control. Therefore, 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.

Detailed reasoning

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 of the deceased estate.

For a dwelling acquired by the deceased after 19 September 1985, that was their 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 after 19 September 1985. After the deceased passed away, you owned the property as trustee 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 guidanceon 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.

In your case, we consider as favourable factors, the impact of COVID restrictions and flooding on access to the property. However, these factors represent a small portion of the total delay and only impacted the sale of the property after the two-year period.

We acknowledge the circumstances of the deceased's death and the complaint process you undertook was very distressing for you and the family. We have concluded that despite the sensitivity of your personal circumstances, we are unable to grant the discretion.

The most significant factor that delayed the sale of the property during the first two years was your decision not to sell whilst you had open complaints. The complaint handler confirmed that their rules did not prevent you from selling the property. As you have not provided any evidence of a legal impediment to sale, we consider this as a decision within your control.

We consider other adverse factors include:

• arranging the sale of the unit before attempting to sell the property
• you didn't visit the property during the first 2 years after death.

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.

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