Edited version of private advice

Authorisation Number: 1052405222531

Date of advice: 17 June 2025

Ruling

Subject: Deceased estate - 2 year discretion

Question 1

Will the Commissioner exercise their 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 dwelling and disregard the capital gain or capital loss you made on the disposal?

Answer 1

No.

This ruling applies for the following period:

Year ending 30 June 20YY

The scheme commenced on:

DD MM YY

Relevant facts and circumstances

The deceased (your close relative) passed away on DD MM YY

The deceased acquired the property in the 19XX's.

The deceased lived in the dwelling until their passing.

The property is less than 2 hectares.

The property was never used for the purpose of producing assessable income.

The deceased had two children, Person 1 (your close relative) and Person 2 (your parent A).

Within the deceased will it stated the following:

Upon trust to permit x Person 1 to reside therein during their lifetime, them paying all rates, taxes and other like expenses in respect thereof, but in the event of their ceasing to occupy the said property or upon their death, whichever shall first occur, the said property is to be sold by my Trustee and the net proceeds thereof are to be divided equally between the said Person 1 and xx Person 2 or to the survivor of them

Your parent B was appointed the executor of the deceased's will.

On DD MM YY, your parent B decided to transfer the property to Person 1 and 2 as 50% each as tenants in common.

On DD MM YY Person 2 (your parent A) passed away.

Within your parent A will their 50% share of the property went to their grandchildren:

•                     Grandchild 1 1/8

•                     Grandchild 2 (your child) 1/8

•                     Grandchild 3 1/8

•                     Grandchild 4 1/8

Person 1 had resided at the property all their life.

Around YYYY Person 1 became disabled and was diagnosed with a serious illness.

On DD MM YY Person 1 moved into aged care, retirement home and chose to treat their 50% of the property as their main residence during this time.

The property remained vacant until Grandchild 2 (your child) purchased Person 2 remaining shares of the property from their siblings.

In MM YY Person 1 and grandchild 2 made an agreement.

The Agreement contained the following:

•                     Person 1 has an interest of 50% share in the property.

•                     Grandchild 2 has a one eighth interest registered on title in the property.

•                     Grandchild 2 wished to purchase the three eighths interest from the other registered proprietors and to facilitate such purchase has requested the bank advance the sum of $XXX for the purposes of the proposal purchased.

•                     The bank desired all registered proprietors of the said land to execute mortgage documentation to secure the loan, effectively providing for Person 1 to become a guarantor in respect of the loan advance.

•                     Person 1 has agreed to execute the bank documentation on the basis of the covenants entered into by both parties in this agreement.

•                     The agreement was signed by Person 1 and grandchild 2.

From MM YY, the property was used 100% by grandchild 2 as their main residence.

On DD MM YY, grandchild 2 name was added on the title of the property as to 1 of a total of 2 equal undivided shares.

On DD MM YY, Person 1 passed away.

Person 1 left their 50% share to your parent B.

Your parent B never lived at the property.

Your parent B passed away on DD MM YY, and within Person 1 will their 50% share went to their close relative, you.

On DD MM YY, your name was added on the title of the property as to 1 of a total of 2 equal undivided shares.

Grandchild 2 had health issues.

•                     Grandchild 2 suffered from health issues from 19YY until they passed in 20YY, such it was important grandchild 2 had a safe place of abode, the property.

•                     Grandchild 2 health issues cause them to be admitted to hospital on many occasions.

•                     Grandchild 2 health issues also impacted their financial situation, and they couldn't afford to move.

•                     In 20YY, Grandchild 2 received another health diagnosis which made it difficult for them to move out of the property.

On DD MM YY, Grandchild 2 (your child) passed away.

On DD MM YY, the property was sold and settled. (XX months from the being listed) and XX years after the deceased death.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Reasons for decision

Subsection 118-195(1) of the Income Tax Assessment Act 17997 (ITAA 1997) states that if you owned a dwelling that passed to you as a beneficiary of a deceased estate (or in your capacity as the trustee of a deceased estate), then you disregard any capital gain or loss made on the disposal of the property if:

•                     the property was acquired by the deceased before 20 September 1985; or

•                     the property was acquired by the deceased 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

•                     your ownership interest ends within 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances); or

•                     the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of:

­        the spouse of the deceased immediately before the death; or

­        an individual who had a right to occupy the dwelling under the deceased's will; or

­        if the CGT event was brought about by the individual to whom the ownership interest passed as a beneficiary that individual.

Generally, we will allow a longer period where the dwelling could not be sold and settled within 2 years of the deceased's death due to reasons beyond your control that existed for a significant portion of the first 2 years.

Factors that would weigh in favour of allowing an extension include the following:

•                     the ownership of the dwelling, or the will, is challenged

•                     a life tenancy or other equitable interest given in the will delays the disposal of the dwelling

•                     the complexity of the deceased estate delays the completion of administration of the estate

•                     settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of your control, or

•                     restrictions on real estate activities imposed by a government authority in response to the COVID-19 pandemic.

Factors that would weigh against allowing an extension include the following:

•                     waiting for the property market to pick up before selling the dwelling

•                     waiting for refurbishment of the dwelling to improve the sale price

•                     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.

In considering whether to extend the 2-year period, we weigh up all the factors (both favourable and adverse) having regard to the facts and circumstances of the case.

The property sale settled XX 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.

The property passed from the deceased to their two children Person 1 and your parent Person 2 as 50% share as tenants in common.

Person 1 had a right to reside within the deceased will.

On the DD MM YY Person 2 passed away and their 50% share was inherited by their grandchildren, grandchild 1, grandchild 2, grandchild 3 and grandchild 4 as 1/8 share as tenants in common.

On DD MM YY Person 1 moved into aged care, retirement home this is when their right to reside ended.

According to the will of the deceased once the right to reside ended thereof, in the event of Person 1 ceasing to occupy the said property or upon their death, whichever shall first occur, the said property is to be sold by the Trustee and the net proceeds thereof are to be divided equally between the said Person 1 and Person 2 or to the survivor of them.

Parent B the trustee of the deceased, at this point in time the property could have been disposed of, in accordance with the wishes of the deceased.

In MM YY Person 1 and grandchild 2 made an agreement. The agreement allowed Person 1 to be a guarantor for grandchild 2, to enable grandchild 2 to purchase 3/8 of the property, this was a personal choice made by the individual who right to reside ended and a 1/8 beneficiary grandchild 2.

On DD MM YY, grandchild 2 name was added on the title of the property as to 1 of a total of 2 equal undivided shares.

The delay in selling the dwelling was not caused by any of the circumstances described as favourable factors, the decision to allow grandchild 2 to purchase part of the property was a matter of choice within the control of the trustee and parties that made the agreement.

On DD MM YY Person 1 passed away and their 50% share was inherited by you.

We acknowledge there was an agreement between Person 1 and grandchild 2, this agreement was binding on you.

Because your child (grandchild 2) had a 50% interest in the property the agreement made by Person 1 and grandchild 2 states:

when the loan is to be repaid either at the banks request or upon the sale of the property, then the capital still owed together with any interest and charges in respect of the loan shall be repaid from monies derived from the half share held by grandchild 2 alone. There will be no demand or payment from the half share of the property registered in Person 1 name.

Meaning if the property was sold the repayment of the loan would come from grandchild 2 50% share not that there were restrictions on selling the property.

As per item X and X In the agreement:

X. the parties hereby acknowledge that in the event of the sale of the property after the payment of agent's fees and conveyancing costs, the net proceeds will be divided as follows: half to Person 1, the amount of principal, interest and charges owed to the bank pursuant to the mortgage referred to herein and the balance to grandchild 2.

X. The parties hereto agree that the said property may be sold, intention of same by XX days' notice in writing from one registered proprietor to the other.

We have considered the favourable factors listed above and find the life tenancy ended when Person 1 moved into the nursing home on the DD MM YY.

The 2-year period of disposal expired on DD MM YY this was followed by a period of a right to reside until DD MM YY.

When Person 1 moved into aged care on the DD MM YY, the property could have been disposed of because at that point of time grandchild 2 was not living in the property and the deceased will had this as their instructions and wishes.

We find the agreement made between Person 1 and grandchild 2 was a matter of a personal choice that caused the delay in selling the property.

We acknowledge that grandchild 2 had health issues and was diagnosis with another health issue in 20YY. However, the right to reside expired when Person 1 moved into the nursing home and the property could have been disposed of then, there are no extenuating circumstance but rather a personal choice Person 1 and grandchild 2 made for grandchild 2 to purchase the property and move into it.

Having considered the relevant facts, the Commissioner will not apply the discretion under subsection 118-195(1) of the ITAA 1997 to allow an extension to the 2-year time limit. Therefore, the normal CGT rules will apply to the disposal of the property.

You should note that the first element of the cost base for the property is its market value on the deceased's date of death. You are entitled to the 50% CGT discount in relation to your 50% share in the property.

Other information:

Property was originally acquired before 20 September 1985; it was a pre-CGT asset.

The property lost its pre-CGT status when the property was transferred to Person 1 and Person 2.

The first element of your cost base is 50% of the market value on the day of Person 1 death on DD MM YY.

From the time Person 1 acquired the property it was their main residence and not used to produce income at any time and thus, you may receive a partial CGT main residence exemption for the total days it was Person's 1 main residence DD MM YY to Person's 1 death on DD MM YY.

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).