Edited version of private advice

Authorisation Number: 1052338162626

Date of advice: 17 December 2024

Ruling

Subject: Commissioner's discretion - deceased estate

Question 1

Will the Commissioner exercise the discretion under section 152-80 of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time for you to dispose of your pre-capital gains tax (CGT) ownership interest in the land and disregard the capital gain or capital loss you made on the disposal?

Answer 1

No

Question 2

Will the Commissioner exercise the discretion under subsection 152-80(3) of the ITAA 1997 to allow an extension of time for you to dispose of your ownership interest in the land interest acquired after 19 September 1985 and disregard the capital gain or capital loss you made on the disposal?

Answer 2

Yes

Question 3

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 3

Yes

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

On Date one, Person A executed their last will and testament (the Will).

The Will directed that Person A's adult child Person B could reside at the Property for a specified period following Person A's death, contingent on them remaining Person A 's carer at the time of their death. The Will also stated that Person B was to pay all outgoings and keep the Property in as good a state as it was at the death of Person A.

The Will named Person A's adult child Person C and their adult child Person B as executors.

In 20XX, Person A's spouse Person D died and Person A acquired their interest in the Property.

On Date 2, Person A (the Deceased) died.

Person E, Person F, Person B and Person C are the children and beneficiaries of the Deceased's estate.

At the time of their death, the Deceased resided at the Property. Their adult child Person B was also residing at the Property at the time of their death.

The Deceased and their spouse Person D acquired the Property prior to XX September 19XX.

The Property was more than X hectares in total, including the Deceased's main residence (the dwelling).

The Deceased had been declaring income from the property.

On Date 3, a grant of probate was made.

On Date 4, the Property was transferred to Person C and Person B as executors.

In late 20XX, the Trustee for Person A (You) received an independent valuation of the Property from Company A.

You also received a verbal valuation for the Property from Company B.

In accordance with the Deceased's will, Person B was required to move out of the Property on a specified date. However, they refused to do so.

As a result of Person B's refusal to vacate the Property, Person C sought legal advice.

Person C engaged a law firm (Company C) to act on their behalf after the specified period Person B was allowed to reside at the Property had expired.

Person B engaged a solicitor (Person G) to act on their behalf.

In late 20XX, Person F, Person C and Person E had a meeting with Person H of Company D, the solicitor for the Trustee for the Deceased's estate. At this meeting, they discussed the sale of the Property to Person B.

On Date 5, Person F agreed to Person B's offer to purchase the Property. However, they were unaware of Person B's list of claims.

Person C and Person E were not in agreement as they weren't clear on the terms of Person B's offer to purchase the Property.

Person B didn't give details about what the offer included.

Correspondence between Person C and Person B's solicitors commenced in 20XX.

On Date 6, Person B's solicitor Person G wrote a letter to Company C, advising that Person B still resided at the Property and did not wish to vacate. In that letter, Person G also advised that Person B was preparing a realistic proposal to finalise the estate of the Deceased including an offer to purchase the Property.

On Date 7, Person G wrote a letter to Company C advising that Person B wished to purchase the property. This amount was arrived at after Person B subtracted a specified amount for repairs and a specified amount for their share of the property. This offer was declined by the other beneficiaries.

On Date 8, Company C sent a letter to Person G, advising the following:

•                     that Person B's right to occupy the Property had ceased

•                     to purchase the Property, Person B must pay the full market value for the house and that;

•                     Person C and another beneficiary wished to inspect the Property between two specified dates

On Date 9, Person B's solicitor Person G advised Company C that Person B had been in contact with some of their siblings but not Person C. Person B advised that they would be available for an inspection of the Property on a date requested.

In early 20XX, Person B offered to purchase the Property.

On Date 10, Person F advised that they had agreed to Person B's offer to purchase the Property on Date 5 and was still agreeable to this. Person E had also agreed to Person B's offer to purchase the Property previously.

On Date 11, Person B lodged a caveat over the Property. The caveat noted that Person B had an interest in the Property and prevented any dealing with the Property without her being notified.

In early 20XX, Person B's solicitor Person G advised Company C that they were having difficulty obtaining instructions from Person B. Person G stated that they thought Person B would advise him that they didn't wish to purchase the Property.

On Date 12, Person H wrote to Person C advising that Person F and Person E had accepted Person B's offer to purchase the Property. Person H advised Person C to seriously consider accepting the offer.

In the middle of 20XX, Person F spoke to the police located near the Property about obtaining access to the Property if Person B refused. The police advised that they would provide assistance if necessary. Company E provided an appraisal in or about the middle of 20XX.

Person C also visited the Property at that time.

On Date 13, Person H had a meeting with Person B to discuss purchasing the Property. Person B advised Person H they were prepared to sign a contract for a specified amount subject to finance. Person H advised that if all the beneficiaries agreed they would prepare several contracts as required.

On Date 14, Person F advised Person H that they would not agree to Person B purchasing the Property for a specified amount if that included other assets of the Deceased.

On Date 15, Person H advised you that as Person B wasn't acting in the best interests of the Property an application to the court needed to be made for their removal as an executor.

On Date 16, Person B sent a letter to the other beneficiaries of the estate of the Deceased, advising that:

•                     they would not move their belongings out in order to attempt to sell the Property and that they thought the beneficiaries would struggle to find a judge to serve an order

•                     they didn't trust legal practitioners

•                     they could not see a reason why they needed to vacate the Property

•                     they would not move out and if the beneficiaries wanted them to move out they would need to convince a judge at the expense of the estate why they needed to be removed

In early 20XX, Person C made a verbal offer to Person B to purchase the Property for a specified amount.

All of the beneficiaries agreed to this offer except Person B. Throughout the remainder of 20XX, Person C attempted to purchase the Property but no agreement could be reached so their offer was withdrawn.

At about the same time, Person C emailed Company C asking them to commence proceedings to have Person B removed as executor.

On Date 17, Person G provided a letter to Company C advising that Person B would vacate the Property toward the middle of 20XX. Person B did not vacate the Property on the requested date.

On Date 18, Person B withdraw their offer to purchase the Property.

On Date 19, a letter was sent from Company C to Person G, advising Person B to provide written confirmation they would vacate the Property within a set number of days. As above, Person B had previously stated that they would vacate the Property on a specified date.

In late 20XX, Person C again visited the Property. Person C visited several times, travelling from their home each time.

On several occasions during late 20XX, the real estate agent attempted to contact Person B to arrange a visit to the Property in preparation for sale. These attempts at contact were unsuccessful. At this time, Person B was also advised that the real estate agent would be attending on Date 20 to take photos.

On Date 21, Company C sent a letter to Person B. The letter advised among other things that:

•                     Person B failed to respond to numerous attempts by a sales agent to contact them with regard to selling the Property

•                     Person B failed to allow the sales agent access on Date 20 to take photographs

•                     Person B again failed to vacate the Property on the requested date

•                     Person B failed to progress the administration of the estate and was not acting in the best interests of the estate

•                     if Person B continued to refuse to vacate the Property, Person C would initiate proceedings to revoke the grant of probate

On Date 21, Date 22 and Date 23, Company C sent letters by email to Person G requesting Person B provide details as to when they would vacate the Property.

On Date 24, Person B allowed photographers to enter the Property to take marketing photographs.

After listing the Property for sale, the real estate agent received a number of unconditional offers to purchase the Property.

On Date 25, the agent received an unconditional offer from a third party to purchase the Property.

On Date 26, Person B made a formal offer to purchase the Property, subject to among other things finance being approved by Date 27.

They did not provide any evidence of finance being approved and the offer lapsed.

In mid 20XX, Person B frustrated attempts to progress their offer. Following their offer, attempts were made to transfer the Property to them which have been unsuccessful.

The following month, several third party offers were made for the Property.

The month after that, Person C visited the Property and observed that the condition had deteriorated and Person B had begun hoarding items at the Property.

On Date 28, Company C sent an email to Person G advising that several unconditional offers had been made for the Property, Person B had refused to vacate the Property, they had failed to discharge their executorial duties, failed to provide evidence of finance approval and that Person C had no option but to apply for orders revoking the grant of probate.

In the early months of 20XX, Company C made enquiries with Person G to determine whether they could provide proof of finance approval pursuant to their offer. They didn't provide proof of finance.

On Date 29, proceedings were commenced by Company C for grant of probate to be reissued and Person B to be passed over as executor. Person C had sworn an affidavit on Date 30 to accompany the initiation of proceedings.

In response, Person B responded requesting that the application be dismissed and they be allowed to purchase the Property pursuant to the will at a value agreed to by all of the residual beneficiaries.

On Date 31, Person C received a property valuation report advising that the estimated value of the Property at that time.

On Date 32, the relevant court heard an application for an adjournment brought by Person B. Person C did not agree to the adjournment.

On Date 33, Person B lodged a submission to the Court advising that they had pre-approval for finance to purchase the Property and requesting an adjournment.

On Date 34, the Court heard Person C's application regarding probate and removing Person as executor.

As Person B lodged out-of-time submissions, a further hearing was held on Date 35 to discuss the submissions. The hearing reconvened on Date 36.

On Date 37, the grant of probate was revoked and Person B was passed over as executor. Probate of the Will was then granted to Person C and they were advised to do all things necessary to transmit the title to the Property into their name as legal personal representative and seek vacant position of the Property.

In early 20XX, the caveat was removed from the Property title.

On Date 38, Person B was served with an order to vacate the Property. They continued to live there for some time after the order to vacate was served.

The Property sold on Date 39. Since being placed on the market in 20XX, it had remained for sale until disposal.

Settlement occurred the following month.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 section 152-80

Reasons for decision

Question 1

Summary

The Commissioner will not exercise the discretion under section 152-80 of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time for you to dispose of your pre-capital gains tax (CGT) ownership interest in the land and disregard the capital gain or capital loss you made on the disposal.

Detailed reasoning

Section 152-80 of the ITAA 1997 allows the trustee established by the will of a deceased individual to reduce or disregard a capital gain under Division 152 of the ITAA 1997 where:

•                     a CGT asset forms part of the estate of the deceased individual;

•                     the asset devolves to that trustee;

•                     the deceased individual would have been entitled to reduce or disregard a capital gain under Division 152 if a CGT event had happened in relation to the CGT asset immediately before their death; and

•                     a CGT event happens in relation to the asset within 2 years of the individual's death.

Under paragraph 152-10(1)(b) of the ITAA 1997 for a capital gain to be reduced or disregarded under Division 152 the event must have resulted in a gain.

A capital gain or loss you make is disregarded under paragraph 104-10(5)(a) of the ITAA 1997 if you acquired the asset before 20 September 1985.

The interest in the property is a pre-CGT asset as it was acquired prior to 20 September 1985.

As it is a pre-CGT asset the conditions of section 152-80 of the ITAA 1997 would not be satisfied as the deceased would not have been entitled to reduce or disregard a capital gain under Division 152 if the CGT event happened immediately before the deceased death because the capital gain on a pre-CGT asset would have been disregarded. Therefore, no capital gain would result from the CGT event as required under paragraph 152-10(1)(b) of the ITAA 1997.

This means that you cannot access the small business concessions under section 152-80 of the ITAA 1997 on the interest in the property acquired prior to 20 September 1985.

Question 2

Summary

The Commissioner will exercise the discretion under subsection 152-80(3) of the ITAA 1997 to allow an extension of time for you to dispose of your ownership interest in the land interest acquired after 19 September 1985 and disregard the capital gain or capital loss you made on the disposal.

Detailed reasoning

Section 152-80 of the ITAA 1997 allows the trustee established by the will of a deceased individual to reduce or disregard a capital gain under Division 152 of the ITAA 1997 where:

•                     a CGT asset forms part of the estate of the deceased individual;

•                     the asset devolves to that trustee;

•                     the deceased individual would have been entitled to reduce or disregard a capital gain under Division 152 if a CGT event had happened in relation to the CGT asset immediately before their death; and

•                     a CGT event happens in relation to the asset within 2 years of the individual's death.

Subsection 152-80(3) of the ITAA 1997 allows the Commissioner to exercise discretion and extend the 2-year time limit.

The post-CGT interest forms part of the deceased estate.

The CGT event did not happen within 2 years of the individuals death.

In determining whether to allow a longer period, the Commissioner will consider a range of factors, such as:

•                     whether there is evidence of an acceptable explanation for the period of extension requested, and whether it would be fair and equitable in the circumstances to provide such an extension

•                     whether there is any prejudice to the Commissioner if the additional time is allowed (however, the mere absence of prejudice is not enough to justify the granting of an extension)

•                     whether there is any unsettling of people, other than the Commissioner, or of established practices

•                     the need to ensure fairness to people in like positions and the wider public interest

•                     whether there is any mischief involved

•                     the consequences of the decision.

There were legal disputes between the executors over the Property that were not resolved until several years after the Deceased's death. One of the executors refused to vacate the property so it could be sold.

Over several years, Person B made various offers to purchase the property. However, they all fell through for several reasons, including:

•                     Person B was unable to obtain finance.

•                     Person B would not agree to the purchase price or conditions of the contract of sale.

The other executor, Person C, made attempts to purchase the property, but Person B would not vacate or agree on the conditions of the contract for sale.

Person B failed to progress the administration of the estate and as a result was passed over as executor. The grant of probate was revoked and re-issued with Person C as the sole executor.

After reviewing your facts and circumstances the Commissioner is satisfied that there is an acceptable explanation for the delay and an extension will be granted for the post-CGT interest.

The Commissioner has not considered if the deceased individual would have been entitled to reduce or disregard a capital gain under Division 152 if a CGT event had happened in relation to the CGT asset immediately before their death. You will need to consider these separately to the extension in 152-80(3) of the ITAA 1997.

Question 3

Summary

The Commissioner will 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.

Detailed reasoning

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 trustee of the Deceased's 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 2 years after the Deceased's death. Therefore, you require the Commissioner's discretion to extend the 2 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:

•                     legal proceedings were required to remove one of the executors and reissue probate.

•                     upon expiration of the period during which Person B was able to reside at the Property, they refused to leave and eventually had to be removed from the Property

•                     the remaining executor continually took steps to progress the Deceased's estate

•                     the residual beneficiaries could not come to an agreement about how to deal with the Property

•                     one of the beneficiaries placed a caveat over the Property limiting dealings with the Property

Having considered the relevant facts, we will apply the discretion under subsection 118- 195(1) of the ITAA 1997 to allow an extension to the 2 year time limit.

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