Edited version of private advice

Authorisation Number: 1051629881768

Date of advice: 23 January 2020

Ruling

Subject: Deceased estate - Commissioner's discretion to extend to the two year period - main residence exemption

Question

Will the Commissioner allow an extension of time for you to dispose of your ownership interest in the property and disregard the capital gain or loss you make on the disposal of up to 2 hectares?

Answer

Yes.

Having considered your circumstances and the relevant factors, the Commissioner will allow an extension of time. Further information about this discretion can be found by searching 'QC 52250' on ato.gov.au

This ruling applies for the following period

Year ending 30 June 2020

The scheme commenced on

1 July 2019

Relevant facts and circumstances

The deceased acquired the property and constructed a residence on that property after 20 September 1985. The property is over 2 hectares in size.

The property was the main residence of the deceased and was not used to derive rent.

The property was 100% owned by the deceased.

In 20XX the deceased's second spouse became ill. The deceased became his/her fulltime carer.

In 20XX the deceased was advised he/she had a debilitating illness. The medication required to be taken caused the deceased to be continually exhausted. The deceased was unable to attend his/her affairs in an orderly manner.

In late 20XX the deceased passed away.

The Executors of the estate, pursuant to the will, were C1 and C2, children of the taxpayer. Another child, C3, was not an Executor.

Subsequent to the deceased's passing C3 became a hostile beneficiary, sending multiple threatening letters and electronic correspondences which had to be carefully considered by the executors and the appointed legal advisors to the Estate.

There were numerous claims and threats made by C3, all of which required a legal response. C3 placed a caveat on the Estate in late 20XX.

The Estate was complex and the affairs of the deceased were not attended to properly for several years prior to his/her passing, making the situation worse.

In late 20XX the long-time personal accountant of the decease ceased to act in that role as a result of the constant legal threat from C3.

The Executors were then required to seek out an appropriate accountant to assist in getting the taxpayers affairs up to date to determine the assets and liabilities to be disclosed to obtain probate.

In mid 20XX the beneficiaries of the Estate of the deceased's second spouse, who passed away in late 20XX, challenged the validity of the deceased's will.

Both wills were complicated by entitlements to a self-managed superannuation fund.

After a lengthy legal and court process, an agreement was entered into in late 20XX with the beneficiaries of the second spouse's Estate.

While dealing with the beneficiaries of the second spouse's Estate, the Executors undertook the process to have the caveat on the Estate removed.

After a lengthy legal process, the caveat was removed by the Supreme Court in early 20XX. Probate was subsequently granted in early 20XX.

Prior to probate, due to legal action, the Executors were unable to act in relation to any assets of the Estate.

With probation granted the Executors were able to systematically deal with creditors and the assets of the Estate.

During the period the legal action was being undertaken the property was vacant and only minor maintenance was carried out.

The property is located approximately XXkm from the Executors.

Since the deceased's passing, the property became significantly and in need of repair.

Given the significant distance, the Executors were only able to travel intermittently to the property which required their significant input to clear the property of substantial possessions of the deceased and his deceased second spouse and make the property saleable.

The property was appraised by a real estate agent during that period; however, due to the overhanging legal action and state of the property, it could not be placed on the market.

The property was listed for express sale in early 20XX. Buyers were asked to make an offer during this period. The property value had been appraised at $XX by agents. No offers were made.

The property was advertised across all mediums.

In mid 20XX the property was offered for sale as the asking price of $XX. No offers were received.

In late 20XX the sale price was reduced to $XX. No offers were received.

In early 20XX the sale price was further reduced to $XX. No offers were received.

An offer was received in late 20XX, for $XX. The offer was accepted. The property settled in late 20XX.

There are market reports that show a long downturn in property prices in the area over the period of the sale of the property.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-195

Further issue for you to consider

Land adjacent to a dwelling may also qualify for the main residence exemption if it and the dwelling are sold together and both of the following apply:

• during the period you owned it, you used the land mainly for private and domestic purposes in association with the dwelling, and
• the total area of the adjacent land and the land on which the dwelling stands is not more than two hectares (4.94 acres).

If the adjacent land is used for private purposes and is greater than two hectares, you can choose which two hectares are exempt. The remainder is subject to CGT.