Edited version of private advice

Authorisation Number: 1051770735606

Date of advice: 22 October 2020

Ruling

Subject: Commissioner's discretion to extend the two year time limit to dispose of a dwelling

Question

Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time to the two year period to dispose of a dwelling?

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 ended 30 June 2020

The scheme commences on:

1 July 2019

Relevant facts and circumstances

In May 19XX, the deceased and their spouse acquired a property (the Dwelling) as joint proprietors.

Several years later the deceased's spouse passed away.

The deceased now had two ownership interests in the Dwelling. The original interest that was acquired in May 19XX and the interest that was acquired upon the passing of their spouse.

The deceased passed away.

The dwelling was the deceased's main residence at the time of their death.

Several months later probate was granted to State Trustees Limited (STL).

After the deceased's death the dwelling was left vacant. It was not used to produce assessable income.

As per the deceased's Will, the deceased left their residuary estate to their spouse. As their spouse predeceased the deceased, the residuary estate was left to their three adult children, Beneficiary One, Beneficiary Two and Beneficiary Three, in equal shares.

The main asset of the estate comprised of the Dwelling, and other minimal assets comprising chattels, motor vehicles and funds in bank accounts.

STL as executor contacted the beneficiaries on numerous occasions to decide whether they would like to retain the Dwelling in equal shares or whether it should be sold. In addition, a decision was also required in relation to chattels and motor vehicles.

Given the funds in the estate were insufficient to cover the estate administration costs, instructions were also required in order to determine each beneficiary's contribution towards the cost of deficiency.

It was always Beneficiary One's intention to acquire their siblings' two thirds ownership interests in the Dwelling. Beneficiary One advised that both Beneficiary Two and Beneficiary Three had no objection to the Dwelling being transferred to Beneficiary One.

STL received written instruction from Beneficiary Two advising that they had no objection to Beneficiary One acquiring their one third ownership interest in the Dwelling.

STL received verbal confirmation from Beneficiary Three advising that they agreed to dispose of their one third ownership interest in the Dwelling to Beneficiary One.

STL engaged a valuer to provide a market valuation for the Dwelling. The report was received valuing the Dwelling at $X!.

Several months later STL prepared and sent a draft deficiency statement to the beneficiaries for review and confirmation. STL were advised that one of the beneficiaries had changed their minds and would not like to take over the motor vehicle as previously described.

STL experienced further delays in finalising the deficiency statement as the following were disputed by the beneficiaries:

a.    The valuation of the Dwelling

b.    The allocation of property related expenses

c.     The division of chattels

d.    The appropriate commission rate

e.    Explanation of post death withdrawals

f.      The charge for genealogy searches.

The deficiency statement could not be finalised until the above issues were resolved. These matters impacted on the calculation of the deficiency amount and whether the proposed transfer could take place.

As Beneficiary One was to acquire full ownership of the Dwelling, they were required to pay in the deficiency amount to the estate. This was further delayed as Beneficiary One was hospitalised for a period of X weeks as a result of an illness.

STL prepared the revised deficiency statement (which included the consideration for Beneficiary One and Two's one third ownership interests respectively) for the beneficiaries.

STL received communication from a solicitor advising that Beneficiary Two appointed Beneficiary One to act on their behalf in regard to the transfer of the Dwelling.

The settlement arrangements were delayed due to the failure of Beneficiary One's solicitor to arrange for the Transfer of Land to be assessed and stamped. Beneficiary One's solicitor found the process complex in nature and was confused, which caused further delays.

COVID-19 then contributed to the uncertainty and delay for all parties given the initial work from home period.

STL prepared the necessary document for the transfer of the Certificate of Title.

Settlement occurred and STL received payment from Beneficiary One representing consideration for deficiency and the acquisition of the two thirds ownership interests in the Dwelling, two years and six weeks after the deceased's date of death.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195