Edited version of private advice

Authorisation Number: 1052242008233

Date of advice: 15 April 2024

Ruling

Subject: Commissioner's discretion - deceased estate

Question

Will the Commissioner exercise the discretion under section 118-195 of Income Tax Assessment Act 1997 (ITTA 1997) to allow an extension of time for you to dispose of your ownership interest in the dwelling and disregards the capital gain or capital loss you made on the disposal?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

30 May 20XX

Relevant facts and circumstances

XXX (the deceased) passed away on XX XXX 20XX.

The dwelling is located at XXX (the property).

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

The deceased and the spouse acquired the property before 20 September 1985 as joint tenants.

On XX XXX 20XX, the spouse passed away. The deceased acquired the remaining 50% interest in the property by survivorship.

The property was the main residence of the deceased until the date of deceased's death and was not used to produce assessable income at any time.

The deceased's Will, dated XX XXX 20XX, provided for XXX to be the Executor of the Trust Estate.

The probate was granted on XX XXX 20XX.

The Executor followed the advice of a real estate agent that the easiest way to sell the property was to rezone and sell all the properties under one title.

The rezoning process commenced in XXX 20XX but was delayed until XXX 20XX due to numerous reasons, including, the Council repeatedly rejected the rezoning application; the illness of the Executor; Covid 19 and tenancy issues.

On XX XXX 20XX, the Executor had a medical incident. The Executor did not visit a doctor for this event and recuperated at home over one week.

In 20XX, the Executor was involved in a car accident and was diagnosed as having a stroke. The Executor has suffered several medical episodes since the car accident and their health has not improved.

After the rezoning was approved by the Council in XXX 20XX, the XXX ultimately thwarted the rezoning application by issuing an order that the properties were subject to a road widening order. The order meant the properties could not be rezoned.

In XXX 20XX, the Executor engaged a real estate agent and signed a formal sales agreement.

The properties were settled on XX XXX 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Reasons for decision

A capital gain or capital loss may be disregarded where a capital gain tax event happens to a dwelling if you owned it as the trustee or beneficiary of the deceased estate.

In your case, the deceased acquired 50% of the property before 19 September 1985, as a joint tenant with the spouse. The deceased acquired the remaining 50% of the property after the spouse died on XX December 20XX. After the deceased died, you owned the property as trustee of the estate. The property was the deceased's main residence until just before their death 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 requested 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 guidance on 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 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 Executor's health issues and the restrictions on real estate activities during Covid-19 pandemic.

We also considered the rezoning process that commenced in June 20XX and completed in November 20XX. You were advised the easiest way to sell the properties was to sell them under the one title with a rezoning to commercial from the existing R2 residential. After the rezoning was approved Roads and Maritime Services issued an order that the properties were subject to a road widening order. Effectively the order meant the properties could not be rezoned.

Having considered the relevant facts, we will not apply the discretion under section 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. You are also entitled to the 50% CGT discount in relation to the property.

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