Edited version of private advice

Authorisation Number: 1052361670988

Date of advice: 13 February 2025

Ruling

Subject: Commissioner's discretion - extension of time

Question

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

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The deceased passed away several years ago.

The property was acquired by the deceased upon their spouse's death.

The property was less than 2 hectares in size.

The property was never used to derive assessable income.

The property remained vacant from the date of the deceased's spouse's death until it was sold.

The deceased was in a nursing facility from prior to their spouse's death.

Probate was granted to the estate several months after the date of death.

The property was the deceased main residence just before they passed away as per Section 118-145 of the Income Tax Assessment Act 1997.

The property was bequeathed to their child.

The property was never transferred into the deceased name, and this was done by a solicitor prior to probate being granted to the deceased estate.

The deceased's child then needed to prove their name to the court as the deceased will used the child's given name rather than the name used on official documents.

This all took time due to Covid.

Property prices went down during the covid period.

The property was transferred into the child's name a few months after probate was granted.

The child then proceeded to prepare the property for sale by doing the following:

•                     Cleaning the property

•                     Painting the entire property

•                     Garden maintenance and cleaning

•                     Bathroom refurbishment

•                     Replacement of carpets

•                     Installation of floating floorboards

•                     Installation of new blinds

•                     Replacement of stove and dishwasher

The above work was caried out on a part-time basis over several months.

The property was placed on the market over 2 years after the date of death.

The property was sold a few weeks later and settlement took place in the following month.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-110

Reasons for decision

The main residence exemption in section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) applies to disregard a capital gain or capital loss a taxpayer makes from a capital gains tax (CGT) event that happens to a dwelling that is their main residence.

If a taxpayer inherits an ownership interest, subsection 118-195(1) of the ITAA 1997 applies so that any capital gain or capital loss they make from a CGT event that happens in relation to a dwelling or their ownership interest in a dwelling is disregarded if:

•                     They are an individual and the interest passed to them as a beneficiary in a deceased estate, or they owned it as the trustee of a deceased estate; and

•                     The deceased acquired the ownership interest on or after 20 September 1985 and the dwelling was the deceased's main residence just before the deceased's death, and was not then being used for the purpose of producing assessable income; and

•                     Their ownership interest ends within two years of the deceased's death, or within a longer period allowed by the Commissioner.

Where the deceased acquired the property prior to 20 September 1985, the dwelling was from the deceased death until your ownership interest ends the main residence of one of the following:

•                     the spouse of the deceased immediately before their death (but not a spouse who was permanently separated from the deceased)

•                     a person who has a right to occupy the property under the deceased's will

•                     you, as a beneficiary, if you dispose of the property as a beneficiary.

Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example:

•                     The ownership of a dwelling or a will is challenged.

•                     The complexity of a deceased estate delays the completion of administration of the estate.

•                     A trustee or beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the two-year period (for example, the taxpayer or a family member has a severe illness or injury).

•                     Settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control.

Factors that would weigh against the granting of the discretion include:

•                     Waiting for the property market to pick up before selling the dwelling.

•                     Property used to earn assessable income.

•                     Unexplained periods of inactivity by the executor in attending to the administration of the estate.

The above examples are not exhaustive.

In addition, once any circumstances preventing the sale of the Property have been resolved, the Property needs to be placed on the market as soon as possible to enable its disposal.

Application to your circumstances

The delay in selling the property was due to inaction by the deceased's child.

The deceased passed away a few years ago and probate was granted a few months later.

While there were some issues with the deceased's child proving their correct name before the property title could be transferred to them it only took a few months for the title to be transferred into the child's name.

The deceased's child did not commence cleaning up the property until a later financial year and then carried out renovations and updates to the property to put it on the market rather than sell it as it was.

While the period from the deceased death until the property was sold was during the Covid pandemic, it appears from the granting of probate several months after the deceased passed and then from when the title was transferred into the child's name, that Covid did not have a big impact on the legal aspects of administering the estate.

There is a large period from when the title was transferred to the child to the period when preparations started to prepare the property for sale that nothing was done to progress the sale.

None of the above circumstances were out of the child's control.

In this regard, we consider that the delay was not outside your control.

It is for the above reasons that you do not meet the requirements for the Commissioner to extend the 2-year time as the property could have been sold at an earlier stage.

The Commissioner will not be exercising his discretion to extend the 2-year period for you to dispose of the Property. Therefore, any capital gain made on the property from the date the deceased passed away until the Property was disposed of will be subject to tax. Australian tax residents are entitled to the 50% CGT discount in relation to the property.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).