Edited version of private advice

Authorisation Number: 1052105890099

Date of advice: 17 April 2023

Ruling

Subject: Commissioner's discretion - deceased estate

Question

Will the Commissioner exercise the discretion to allow an extension of time under section 118-195 of the Income Tax Assessment Act 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

Yes.

Generally, repairs to the deceased's property that were undertaken to improve the condition it was in at the time of their death would not be a factor favourable to exercising the Commissioner's discretion.

However, having considered all of your circumstances and the relevant factors the Commissioner will allow an extension of time.

It is important to note that rather than the factor of repairs being undertaken to the property, the following factors were relevant to this decision:

•         the executor's own health issues during the COVID-19 pandemic.

•         sensitivity of the personal circumstances of the executor.

•         the requirement to undertake clearing and cleaning of the property (removal of rubbish and general cleaning) as opposed to repairs that occurred after the deceased passed away.

•         the dispute with the neighbour relating to the fencing issue and rubbish underneath the property.

•         the COVID-19 pandemic having contributed to delays in getting the cleaners in to remove rubbish and clean the property up, along with delaying discussions between the appointed Power of Attorney and the executor.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The deceased passed away in mid-20XX.

The deceased acquired the property after 20 September 1985.

The deceased's elderly parent was appointed executor, but given their age a family friend (and good friend of the deceased "the family friend") obtained enduring power of attorney a few months after the deceased passed away, and following a request from the appointed executor to assist with the handling of the estate.

As the deceased did not have a spouse or children, they had shared a very close relationship with the executor, especially in the years after the executor's spouse passed away.

The deceased was a hoarder. Their property both inside and underneath was so full of personal items it became so cluttered to the point where it was difficult to move around by the time the deceased passed away, and the state of clutter was a serious problem (at the time the deceased passed away the bedrooms were very difficult to access).

Due to the state of the property, it was arranged for the deceased to visit their parent at their place to avoid any embarrassment.

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.

The property was situated on less than two hectares of land.

Following the deceased's death, the executor had a major inability to deal with the property and what needed to be done to prepare it for sale because the deceased had been discovered at the property.

Grant of probate was issued in early 20XX and the deceased's parent was appointed as the executor.

It was the family friend's intention that once probate issued, they would speak to the executor and raise the issue of selling the property.

At the time, the executor did not have any comprehension as to the extent of work required to the property (rubbish and clutter).

After probate was granted, the worsening isolation and other restrictions regarding COVID made it difficult for the family friend to speak with the executor in person about what needed to happen. At the time the executor wanted the property to be sold but didn't realise what needed to occur.

The executor also had some of their own health issues throughout 20XX and 20XX, with a number of ambulance visits and hospital stays including aged care respite.

Eventually, face to face discussions with the executor occurred over the latter part of 20XX.

These matters could not be dealt with over the phone due to the executor's own state of health during the COVID period and their own emotional state of mind following the deceased's death.

The executor only came to the realisation of the state of the property in late 20XX after the family friend showed them photographs.

The executor was also initially reluctant to let strangers deal with the property.

It soon became apparent that the work needed on the property to prepare for sale was beyond the family friend and professional cleaners needed to be called in (the enormity of the task became evident upon having a more detailed look at the property).

When works were able to be started, further delays were caused by availability of professional cleaners, the family friend's availability to co-ordinate due to COVID restrictions, being able to obtain approval from the executor, and the extent of works required becoming more evident the more they got into it.

It was largely the hoarding which resulted in the condition of the property.

In addition to the clutter and rubbish, the interior of the property was in a poor condition.

The cleaners sorted some personal effects, and after a period of time sorting through, the second removal of rubbish occurred in early 20XX.

Several skip bins were required to remove all the rubbish.

Once the rubbish was removed, the same cleaners then completed an intensive clean of the interior of the house, including intensive washing of all walls and ceilings.

In early 20XX the family friend commenced buying the paint and then painting the interior of the residence.

Prior to painting, the interior of the house required scrubbing down and in large areas to strip down the walls and to repaint and replaster which also required electrical works to be carried out and removed and the replacement of services (for example exhaust fans which had become clogged and unusable).

Other minor works were also carried out.

Dispute with the Neighbour

In mid-20XX the deceased's neighbour raised a fencing issue along with there being wall to wall clutter under the house. Enquiries were made at the time, but it was extremely difficult to get quotes given the pandemic situation.

In early 20XX a response was made to the neighbour attempting to resolve the issue of the removal of rubbish in the yard and the fencing issue.

Shortly after this a detailed response was provided by the neighbour in relation to the fencing issue and the apparent removal of rubbish.

A few weeks after this a monetary offer was presented to the neighbour on behalf of the estate to resolve the dispute on all factors.

In mid- 20XX the neighbour accepted the monetary offer from the estate.

Preparation for sale

A further skip bin was delivered in mid-20XX to clean up the remaining clutter.

Following the final works being completed as listed above, the family friend then arranged for the same cleaning professional to do a final clean of the property.

Shortly after this the property was then listed for sale with an area specialist (after the legal proceedings with the neighbour had been finalised).

You entered into a contract to sell the property on a couple of months later with settlement occurring in mid-to-late 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-195

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