Edited version of private advice

Authorisation Number: 1052407482277

Date of advice: 13 June 2025

Ruling

Subject: Commissioner's discretion - deceased estate

Question 1

Will the Commissioner exercise the discretion under table item 1 of subsection 118 195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the 2-year time period by which the Administrator's ownership interest in the Property ends?

Answer 1

Yes

This ruling applies for the following period:

Year ending 30 June 20XX

Relevant facts and circumstances

Person T died on DD January 20XX.

Person T owned the Property. Person T claimed the Property as their main residence for XX years. Person H lived with Person T at the Property immediately prior to their death.

On DD January 20XX, Person T's child and Person T signed a transfer document (Transfer) which purported to transfer the Property from Person T to Person T's child, below market value. The Transfer was never registered. Person T remained registered owner of the Property.

The original Grant of Probate made in favour of the executors under the last Will of the Person T was revoked.

In July 20XX the Court made orders noting the parties' agreement to appoint an independent administrator (the Administrator), a specialist Wills and Estates lawyer.

Person H made a family provision claim against the estate on DD July 2021 (First Proceeding).

In February 20XX, a residuary beneficiary under Person T's last Will (Person Z) contested the legal effect of the Transfer in a Supreme Court (Second Proceeding). Person T's child maintained that he had an interest in the Property. Person Z contested that claim on the basis that the Transfer was null and void due to Person T being under undue influence and duress at the time of the Transfer.

Letters of Administration (with the Will annexed) was granted to the Administrator in September 20XX.

As part of the settlement of the First Proceeding, it was agreed that Person H had a right of residence in respect of the Property between the date of Person T's death and DD February 20XX. Person H moved out of the Property on DD February 20XX as per the settlement and the First Proceeding was resolved by a Court order dated DD June 20XX.

Subsequent to Person H having moved out, the Property was broken into whilst uninhabited. Therefore, to avoid the Property sitting idle while the Second Proceeding was ongoing, the Property was leased to tenants from DD September 20XX under a X-month lease (to DD March 20XX). By the end of the initial lease term, and in anticipation of the Second Proceeding scheduled for hearing by the Court in June 20XX and the expectation that it could take a further XX months until judgement was handed down, the lease was extended for a further XX months to the same tenants (until DD September 20XX).

Person T's child withdrew their claim in respect of the Second Proceeding on DD May 20XX. A settlement was reached and formalised by Court orders on the same date pursuant to which Person T's child released all Person with respect to the Property.

The Administrator listed the Property for sale in July 20XX, subject to the existing tenancy. The listing price was $X, as recommended by the real estate agent.

Once the extended lease term expired on DD September 20XX it was not extended further or renewed. Instead, at the recommendation of the real estate agent to ensure the Property was maintained and to reduce the likelihood of further break-ins, the same tenants remained living in the Property on a month-to-month basis.

On DD November 20XX the tenants were issued with a notice to vacate on the basis that they were failing to cooperate with the real estate agent and presenting the Property in a poor state. That notice required the tenants

to vacate the Property within XX months (i.e. by DD February 20XX).

The tenants vacated the Property on DD February 20XX.

The Administrator entered into a contract for the sale of the Property in April 20XX for $X. Both the delay in the sale of the Property and the reduced sale price is attributed to a lack of interest on account of it being both rural and in a flood zone. The Property remained on the market since it was first listed in July 20XX.

The sale of the Property settled on DD April 20XX.

The Administrator carried out minor repairs to the Property in 20XX because of the damage caused by the break-in. No other improvements were made to the Property.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 118-130(3)

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 subsection 118-195(1)

Income Tax Assessment Act 1997 subsection 118-195(2)

Further issues for you to consider

This private ruling is confined to the question in regard to whether the Commissioner will exercise the discretion under table item 1 of subsection 118-195(1) to allow a longer period by which the Administrator's ownership interest in relation to the Property ends.

The Commissioner has not considered the Administrator's entitlement to disregard a capital gain or loss it made from the disposal of the Property pursuant to section 118-195 (or the extent to which a capital gain or loss it made can be disregarded). The time period by which an ownership interest in a dwelling ends is one of a number of conditions set out in section 118-195 which require satisfaction.

Reasons for decision

Section 118-195 disregards any capital gain or loss made from a CGT event that happens in relation to a dwelling, or the taxpayer's ownership interest in it, where the following conditions are satisfied:

•                the taxpayer is an individual to whom the ownership interest is passed as a beneficiary in a deceased estate, or the taxpayer owns the interest as a trustee of a deceased estate;

•                either:

o        the ownership interest was acquired by the deceased before 20 September 1985; or

o        the ownership interest was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased's main residence just before their death and was not then being used for income producing purposes;

•                either:

o        the taxpayer's ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner; or

o        from the time of the deceased's death until the taxpayer's ownership interest ends, the dwelling was used in one of the ways listed in column 3 of table item 2 of subsection 118-195(1);

•                the deceased was not an excluded foreign resident just before their death; and

•                the capital gain or loss made by the taxpayer arose from a CGT event listed in subsection 118-195(2).

PCG 2019/5 explains how the CGT main residence exemption may apply to the disposal of a dwelling by a beneficiary or a trustee of a deceased estate and the factors which the Commissioner gives regard to in considering whether or not to grant an extension of time.

Paragraph 3 of PCG 2019/5 states:

Generally, [the Commissioner] 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.

Paragraph 12 of PCG 2019/5 sets out the circumstances favouring a longer period by which the taxpayer's ownership interest in the dwelling ends. They are:

•                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.

The Commissioner may also consider other factors relevant to the exercise of the discretion, as listed in paragraph 17 of PCG 2019/5 to include:

•                the sensitivity of your personal circumstances and of other surviving relatives of the deceased

•                the degree of difficulty in locating all beneficiaries required to prove the will

•                any period the dwelling was used to produce assessable income, and

•                the length of time you held the ownership interest in the dwelling.

Conversely, paragraph 13 of PCG 2019/5 sets out the circumstances that the Commissioner considers cannot be material to the delays in the disposal of the taxpayer's ownership interest. They are:

•                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.

Application to your circumstances

For a dwelling that you have a contract for the happening of a CGT event, you have an ownership interest in it until your legal ownership of it ends (subsection 118-130(3)).

Therefore, the interest owned by the Administrator in the Property ended on DD April 20XX. The ownership interest of the Administrator did not end within 2 years of the death of the deceased (on DD January 20XX), thereby exceeding the statutory limit in column 3 of table item 1 of subsection 118-195(1).

Consequently, the condition in column 3 of table item 1 of subsection 118-195(1) is not satisfied, unless the Commissioner extends the time limit.

The Commissioner considers it appropriate to exercise the discretion under table item 1 of subsection 118-195(1) to extend the time limit by which the interest in the Property owned by the Administrator ended until the time at which that ownership interest ended, i.e. DD April 20XX.

The basis for this decision includes the following:

•                the fact that the delay in selling the Property was due (in large part) to a number of events beyond the Administrator's control, including:

o        their appointment as an independent administrator (and the revocation of the original Grant of Probate) XX months after the deceased's death;

o        the First Proceeding initiated by Person H in July 20XX (less than XX months from death) and resolved in June 20XX (almost XX years later);

o        the Second Proceeding initiated by Person Z in February 20XX (more than a year from death) and resolved in May 20XX (approximately XX years later); and

o        the Property took over XX months to sell; not an unreasonable period of time given its location in a rural flood zone;

•                the Property was listed for sale less than XX months following the withdrawal of the claim under the Second Proceeding;

•                as an independent administrator of the estate, the Administrator did not have reason to want to unnecessarily delay the sale or finalisation of the estate;

•                none of the factors in paragraph 13 of PCG 2019/5 were relevant to the delay in disposing of the Property; and

•                while the Property was used by the Administrator to produce rental income, there is no reason to suggest that any delay was caused in the pursuit of that income, as demonstrated by the fact that:

o        the decision to begin leasing the Property was primarily made to avoid it sitting idle, and it was made at a time when the Second Proceeding was ongoing and reasonably expected to be resolved subsequent to the end of the lease term; and

o        no lease was offered for a term exceeding XX months and no lease was executed or extended once the Second Proceeding was resolved.

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