Edited version of private advice

Authorisation Number: 1052327342650

Date of advice: 12 November 2024

Ruling

Subject: Deceased estate 2-year discretion

Question 1

Will the Commissioner exercise the discretion under section 118-195 of ITAA 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 1

Yes.

Having considered your circumstances and the relevant factors the Commissioner will allow an extension of time. Further information about the Commissioner's discretion can be found by searching ato.gov.au for 'QC 66057'.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commenced on:

XX XX 20XX

Relevant facts and circumstances

The deceased passed away on XX XX 20XX

The dwelling is located at <Redacted> (the property).

The deceased acquired the property after XX September 19XX.

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 X hectares of land.

The deceased left a Will dated XX XX 20XX to three of thier children as beneficiaries.

Probate of the Will was granted in the Supreme Court on XX XX 20XX to the Executors as described in the Will.

At the time of the death, the deceased was the sole proprietor of the property which was to be left in equal ownership shares to the three beneficiaries. Since the deceased's death, the property had been left vacant.

The property was listed for sale on XX XX 20XX. Contracts of sale of the property was exchanged on XX XX 20XX and settlement occurred on XX XX 20XX.

COVID-19 border closures and movement restrictions were in place at various times and locations from the deceased's death, through the probate period, and during the preparation for the property listing period.

Essential work to maintain the property to a sellable standard was impacted. The closures and restrictions significantly impacted the essential work required to maintain the property and the legal obligations required to finalise probate and bring the property to market.

One of the three beneficiaries, lived overseas for a significant period during this time and one of the other beneficiaries, living in Australia did not live within a close geographical range. Liaison between all stakeholders was difficult during this period and the processing of probate was also affected by staff shortages during COVID-19 lockdowns.

There was a further delay bringing the property to market as the terms of the Will were contested by the beneficiaries. One of the beneficiaries made an offer to purchase the property as a private off-market sale, however, this was strongly disputed by another beneficiary. A caveat contained in the Will regarding the repayment of a personal loan previously made by the deceased to one of the beneficiaries formed part of the dispute negotiations.

Given the delays with COVID-19 issues and contestation actions by the beneficiaries, the Executors of the estate were concerned with meeting the X-year sale period and associated requirements. They engaged Solicitor A to investigate the requirements and to confirm the end of the X-year period. Solicitor A provided the Executors with the advice that the ATO used the date of contract signing to determine a property had been sold within the X-year exemption period.

Based on Solicitor A's advice, the Executors proceeded to attend to the affairs of the estate and subsequent sale of the property. An extended settlement period was agreed to by all parties due to the approaching the holiday period.

After contracts were exchanged, one of the Executors became concerned the information provided by Solicitor A may have been incorrect and sought a second legal opinion from a different firm. Solicitor B confirmed the full sale and settlement of the property must occur within the X-year period for the exemption to apply.

The Executors immediately contacted the purchasers to try tof rearrange and bring forward the settlement date to a date prior to the end of the X-year period.

The purchasers were unable to comply with this request, with the property settling on the original date (X weeks after the X-year period).

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

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