Edited version of private advice

Authorisation Number: 1052129354516

Date of advice: 19 June 2023

Ruling

Subject: Commissioner's discretion - deceased estate

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 to dispose of the property?

Answer

No.

This ruling applies for the following period:

The year ending 30 June 2023

The scheme commences on:

XX month 20XX

Relevant facts and circumstances

The property is on land of less than 2 hectares.

The property was acquired by the deceased prior to 20 September 1985 and was the deceased's principal place of residence for the entire period of ownership. The property has never been used to generate income.

The deceased suffered a medical incident and after time in hospital was forced to go into an aged care facility on XX month 20XX.

It was the deceased intention to recover and return home. As a result, the property was left vacant, and no work commenced on decluttering the home.

The deceased passed away on XX month 20XX and probate was granted on XX month 20XX.

The property was not in a fit state for immediate sale (once probate issued).

From month 20XX to early 20XX a start was made on the property clean out. This included hire of rubbish skips to start cleaning out the property. No major repairs or improvements were undertaken. Cleaning out of the property was the majority cost.

The property was sold on XX month 20XX.

COVID-19 lock down restrictions

While not in full lock down, travel restrictions applied at various times of X, X or X kms. The executor resided more than X kms from the estate property. Travel to inspect a property was not permitted travel

You note further lockdowns which commenced prior to the National lockdown.

The dates as they applied to the executor during the lockdowns shows 361 days of prohibition from attending the property of 586 days total during that time (XX March 20XX - XX October 20XX).

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-195

Reasons for decision

Summary

We acknowledge the COVID-19 restrictions did have an impact. However, in this regard, there was no indication that the executors attempted to list the property for viewing or sale during the lockdowns. As there was a significant period of delay in disposing of the property that was not outside of the control of the executor, the Commissioner will not exercise the discretion to extend the two-year period to dispose of the property.

Detailed reasoning

In certain circumstances, section 118-195 of the ITAA 1997 provides that the trustee of a deceased estate may disregard an assessable gain or loss made from the disposal of a property that passed to them in their capacity as trustee of a deceased estate if:

In certain circumstances, section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) provided that the trustee of a deceased estate may disregard a capital gain or loss made from the disposal of a property that passed to them in their capacity as trustee of a deceased estate if:

•         The property was acquired by the deceased before 20 September 1985; or the property was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income; and

•         Your ownership interest ends within two years of the deceased's death.

Practical compliance Guidelines PCG 2019/5 the Commissioners discretion to extend the two-year period to dispose of the dwellings acquired from a deceased estate provides guidance on factors we consider when deciding whether to grant the discretion.

Paragraph 3 of the 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.

The factors the Commissioner will consider to be favourable are listed in paragraph 12 of the PCG as follows:

•         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 the administration of the estate;

•         Settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of your control; or

•         Restrictions on real estate activities imposed by a government authority in response to the COVID-19 pandemic.

Application to your situation

In this case the Commissioner has decided not to exercise his power to extend the two-year period. We have taken the following into consideration when making our decision:

•         Regarding the restrictions imposed in response to the COVID-19 pandemic. Generally, the ATO does not accept the COVID-19 lockdowns or restrictions as a blanket reason for the delays in disposing of the property. The reference to COVID-19 in the PCG 2019/5 only refers to 'real estate viewing and auctions'. Further, the following does not support their argument that the lockdowns hindered their efforts in attending to the property:

o   based on the list of expenses, that some of the maintenance was done during the lockdown periods

o   the executor, during COVID-19 restrictions, did continue with some cleaning out of the property but not full-time

In conclusion, it there were periods of inactivity where it appears the executor did not actively attend to the property and made no attempt to list the property for viewing or sale. Also, considering that there were no major repairs or renovations done to the property, the lengthy delays appear to be unexplained. Based on the information provided, the Commissioner will not exercise his discretion to extend the 2-year period.

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