Edited version of private advice

Authorisation Number: 1052355744857

Date of advice: 11 February 2025

Ruling

Subject: Deceased estates - Commissioner's discretion

Question 1

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

Answer 1

No.

We cannot exercise the Commissioner's discretion under subsection 118-195(1) of the ITAA 1997 when there is no dwelling erected on the vacant land.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

Before 20 September 1985, the Deceased and Person A inherited the property as tenants in common in equal shares.

The property is less than 2 hectares in size.

On XX XXXX 20XX, the Deceased executed their last Will and testament, where:

•                     Person B was appointed executor and trustee of the Will.

•                     If Person B predeceased the Deceased or was unwilling or unable to act, then you would be appointed executor and trustee.

Person B predeceased the Deceased.

Prior to that date of death, there had been a dwelling on the property, but it was demolished and left as vacant land.

On XX XXXX 20XX, the Deceased passed.

On XX XXXX 20XX, you lodged an application for probate as the substituted executor appointed under the Will.

On XX XXXX 20XX, you were granted probate.

On XX XXXX 20XX, you engaged legal Firm A.

On XX XXXX 20XX, Firm A unsuccessfully attempted to contact Person A with regards to the property as they were required to sign paperwork for the discharge and pay their half share of the costs.

On XX XXXX 20XX, Firm A reattempted to contact Person A.

On XX XXXX 20XX, Person C, contacted Firm A regarding the property. Person C would not allow you to discuss the matter directly with Person A.

On XX XXXX 20XX, the mortgage over the property was discharged.

On XX XXXX 20XX, the certificate of title issued for the property.

Person A wanted reimbursement of expenses they incurred relating to the period of their ownership. You proposed that the property be sold within the time frame and all funds from the sale of the property be held in trust until such time as the reimbursement of expenses issue was resolved.

On XX XXXX 20XX, Person C advised that they wanted the matter of expenses resolved prior to selling the property.

On XX XXXX 20XX, you received all information regarding the expenses Person A paid on behalf of the property that they wanted reimbursed.

Between XXXX 20XX and XXXX 20XX, you exchanged consistent correspondence with Person C trying to resolve the issue.

On XX XXXX 20XX, a proposed settlement was reached in relation to expenses to be reimbursed for the property and a draft deed was provided to Person A by Firm A for signing.

On XX XXXX 20XX, after amendment was made a final deed was provided.

On XX XXXX 20XX, Person A and Person C engaged legal Firm B and at this time you became aware that Person C held a Power of Attorney over Person A and was acting on their behalf.

Over a couple months, various emails were exchanged between Firm A and Firm B to facilitate a meeting with all parties present to finalise the amount to be reimbursed.

On XX XXXX 20XX, a meeting was held with all parties where the amount of expenses to be reimbursed to Person A was agreed.

On XX XXXX 20XX, you engaged a realtor to sell the property.

On XX XXXX 20XX, you accepted an offer subject to finance. This was subsequently amended, and the amendment accepted subject to the property being put back on the market.

On XX XXXX 20XX, the property was sold.

On XX XXXX 20XX, the property settled.

You made no repairs or improvements to the vacant land.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-115

Income Tax Assessment Act 1997 section 118-195

Reasons for decision

A capital gain or capital loss may be disregarded where a capital gains tax (CGT) 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 before 19 September 1985, 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.

Subsection 118-115(1) of the ITAA 1997 provides that a dwelling includes a unit of accommodation that is a building or is contained in a building and consists wholly or mainly of residential accommodation, and the land immediately under the unit of accommodation.

The property was sold more than two years after the deceased's death. Therefore, you require the Commissioner's discretion under section 118-195 of the ITAA 1997 to extend the two-year period to be eligible for an exemption.

In your case, the Deceased acquired their ownership interest in the property before 19 September 1985. However, there were no dwelling on the property at the time they passed. As the property was vacant land at the time the Deceased passed and due to there being a requirement for a dwelling to exist on the land, 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 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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