Edited version of private advice

Authorisation Number: 1052256370562

Date of advice: 31 May 2024

Ruling

Subject: Commissioner discretion -deceased estate

Question

Will the Commissioner exercise the discretion 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

The Commissioner will not exercise his discretion under section 118-195 of the Income Tax Assessment Act 1997 to extend the period until 19 December 20YY for disposal as you have not met the relevant criteria for an extension.

This ruling applies for the following period:

Year ended 30 June 20YY

The scheme commenced on:

13 September 20YY

Relevant facts and circumstances

The deceased passed away on XX X 20XX.

The property's land area is less than 2 hectares.

The property was the main residence of the deceased just before they passed away.

The property was not used to produce assessable income.

Probate was granted on XX X 20XX.

You were the executor of the estate.

You inherited the dwelling as sole beneficiary.

You are unable to provide a copy of the title to the property in your name (as beneficiary).

There are sensitive personal family circumstances involved which include caring responsibilities.

Covid exasperated the sensitive personal family issues.

The deceased 's grandchild (your child) occupied the dwelling from X 20XX to XX X 20XX.

Your child had no right to occupy the dwelling under the will.

You covered all expenses at the dwelling during this period.

You were unable to continue to pay the rates, insurance and land tax for the house.

Your child moved out of the dwelling as you needed to sell the house.

You helped your child move.

You disposed of unwanted possessions and cleaned the house and cleared the garden after your child moved.

Inside of the house was totally repainted.

The bathroom was totally replaced.

Wood floors and carpets were installed throughout.

A new stove was installed.

You first engaged a real estate agent to sell the property in X 20XX.

The contract of sale was exchanged.

A revised contract of sale was exchanged.

Sale of the property was settled.

Relevant legislative provisions

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

Reasons for decision

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 or beneficiary of the deceased estate.

For a dwelling acquired by the deceased after 19 September 1985, that was the deceased's 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 beneficiary 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 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 17of 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 that the property was used as the deceased's main residence and was not used for income producing purposes. We also considered the many other events that occurred from the time of the deceased's death until the property was sold. These included the health issues of your children along with your child's personal issues. We acknowledge the sensitivity of the personal family circumstances including your caring responsibilities. You have been unable to provide an explanation of how unforeseen or serious personal circumstances contributed to being unable to attend to the deceased estate. Consquently unforeseen or serious personal circumstances could not be classified as exceptional circumstances preventing finalisation of the estate.

We considered the use of the dwelling for the whole of the period from the date of the deceased's death until settlement of the sale of the dwelling when determining whether or not to exercise the Commissioner's discretion.

You have not identified any other factors that prevented you from selling the property whilst your child was living in the property.

PCG 2019/5 also outlines factors that would weigh against the Commissioner allowing a longer period. Some factors include inconvenience on the part of the trustee or beneficiary to organise the sale of the dwelling or unexplained periods of inactivity by the executor in attending to the administration of the estate.

ATO Interpretive Decision (ATO ID) 2003/109 Capital Gains Tax: Deceased estate - main residence exemption states that:

An individual would be considered to occupy a dwelling under the deceased's will if it was in accordance with the terms of the will. This would also be the case if it was in pursuance of the will or under the authority of the will (see Evans v. Friemann (1981) 53 FLR 229 at 238).

This outcome is consistent with the general rule of construction that the intent of the deceased must be ascertained from the words of the will and that one cannot speculate or guess after that intention. (see Certoma, GL 1987, The Law of Succession in New South Wales, The Law Book Company, Sydney, p. 117.)

Comparisons can be made between your circumstances, and the circumstances set out in ATO ID 2003/109, as in your case, your child did not have a right to occupy the dwelling under the Will. Your child resided in the house because you so agreed. This could be considered as a dominant reason for the delay in the sale of the dwelling. Although it was an understandable choice it was nevertheless still a choice and not a circumstance outside of your control causing the delay to the sale of the property.

We also considered the information and documentation provided does not support that the deceased estate was of a complex nature and hence there were no factors to suggest that there would be a delay in completing the administration of the estate.

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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