Edited version of private advice

Authorisation Number: 1052086644202

Date of advice: 16 February 2023

Ruling

Subject: Commissioner's discretion - deceased estate

Question

Will the Commissioner exercise the 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 to dispose of the dwelling?

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 66054' on ato.gov.au

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

XX February 20XX

Relevant facts and circumstances

The Deceased and their spouse owned a dwelling as joint tenants (The Dwelling).

They acquired the Dwelling after 19 September 1985 and lived in it as their main residence.

The Deceased's spouse passed away. Their ownership interest in the Dwelling passed to the Deceased.

Several years later, the Deceased passed away after being in palliative care for several months. The Deceased had made the choice to continue to treat the Dwelling as their main residence.

At the time of their death, the Deceased's adult child, (Child One) had been living in the Dwelling with the Deceased.

Child One had suffered a trauma as a child that had impacted them negatively in numerous ways. Both of the Deceased's other children, Child Two and Child Three, were forced to leave the home at a young age as a result.

Although for a time in their adult life, Child One attempted to live independently, this was not sustainable due to these issues.

This resulted in Child One living with the Deceased and the Deceased's spouse in the Dwelling. Following the death of the Deceased's spouse, the Deceased's health declined and they were constantly fearful of Child One's behaviour in the house but felt powerless to evict them.

A financial adviser had also indicated that the Deceased was a victim of financial abuse.

The Deceased had asked Child Two that he not to be returned to the Dwelling when he was ill prior to his death.

Several months after the deceased passed away, probate was granted.

Child Two is the executor of the estate (the Executor).

The Deceased's will provided for three beneficiaries, the Deceased's children; Child One, Child Two and Child Three.

Under the Will, Child One was given a right to reside in the Dwelling for 12 months. It was a suggestion made to the Deceased by his lawyer, to soften the blow for Child One. Child One was supposed to pay rent to the other beneficiaries and contribute to the upkeep of the Dwelling but was unable to do so.

In February 20XX Child One became enraged when they discovered they had to move out of the Dwelling at the end of the 12 months. Child One believed they had been the Deceased's carer and that they were a part owner of the Dwelling. Child One advised that the Executor was not to enter the Dwelling during the 12 months Child One had the right to reside under the will, and that they would be seeking legal advice.

Child One had believed that their parents should have sued for $X million for the trauma they suffered as a child, and that they were owed the value of the Dwelling.

The Executor decided it might be best to give Child One some time and space to come to terms with the reality of the situation rather than escalate the behaviour and revisit the matter at the conclusion of the 12 months.

At the conclusion of the 12 months, The Executor attended the Dwelling to discuss helping Child One to find another property to move to. The Executor encouraged Child One that it would be in their best interests as they had bills that had not been paid, the phone had been disconnected and they were finding it hard to maintain the Dwelling. The Executor provided her support to Child One through the process.

Due to Child One's behavioural issues, it was not an option to have Child One move in with either the Executor or Child Three.

The COVID-19 pandemic had begun impacting Australia and that same day, the lockdowns were announced.

The Executor lives 50km away from the Dwelling in City A, so was unable to travel to the Dwelling to provide any assistance to Child One.

There were multiple COVID lockdowns in City A over an extended time.

Child A lost their casual job and became solely dependant on the Job Seeker payment. There were a number of factors that were expected to make it difficult for Child A to obtain other employment.

During the COVID pandemic Child A's mental health declined even further and they again became resistant to moving out of the Dwelling.

Child A's extreme actions during this time made it difficult for anyone to access the Dwelling.

Every attempt the Executor made at conversation rapidly escalated into incoherent rants and threats. Child A threatened to turn the gas jets on and throw a match into the Dwelling.

During this time the Executor also had numerous other caring responsibilities to several members of her family who had various health issues.

Following the final state lockdown, Services Australia was successful in finding Child A full time employment. At that point Child A was more receptive to communication.

As Child A now had stable work and income, The Executor spent every spare moment seeking a rental unit for them. It took months and consistent rejections, but eventually the Executor was able to assist Child A to relocate from the Dwelling.

The Executor now had vacant possession and set about the task of clearing the very cluttered Dwelling, as a result of lifelong hoarders. This process took several weeks and several sensitive matters required negotiation with the other beneficiaries.

No renovations, repairs or improvements were made. The Dwelling was cleared and the lawns and garden tidied.

At the time of sale the Dwelling was vacant, but not fit for occupancy unless considerable repairs were undertaken.

The Dwelling has not been used to produce assessable income, at any time before or after the Deceased's death.

The Dwelling was placed on the market at a price expected to expediate a sale.

After a few months the Dwelling was sold to the first interested buyer at a price of $XXX. This was considerably less than what the beneficiaries had expected, however they wanted to put the whole experience behind them.

Settlement occurred three years and ten months after the Deceased's death.

A capital gain was made upon the sale of the Dwelling.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

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

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