Edited version of private advice

Authorisation Number: 1051787704575

Date of advice: 6 January 2021

Ruling

Subject: Capital gains tax - deceased estate

Question

Will the Commissioner allow an extension of time for you to dispose of your ownership interest in the dwelling?

Answer

Yes

This ruling applies for the following period:

30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Person A purchased a property (The Property).In 20XX, Person A transferred a percentage of their ownership interest in The Property to Person B (their spouse).

Person A died in 20XX. On their death, their children C and D were each granted an equivalent ownership interest each in The Property. The remaining ownership interest in The Property remained with Person B. Person A's Will did not include any provision for Person B.Person A's Will included a statement that it contained no provision for Person B as they had made adequate financial provision for them during their lifetime. Their children C and D were also appointed as the Executors for the administration of Person A's Estate.

Person B entered a nursing home prior to Person A's death.

The Property was first listed for sale during late 20XX or early the following year.

Early that year, the local city council (The Council) advised that they intended to re-zone the area The Property was located in for recreational use.

Probate was granted shortly after this.

In the same month, a Draft Environmental Plan was received by The Council. You sent an objection to The Council regarding the proposed re-zoning of The Property as recreational.

Shortly after, an Option Agreement was exchanged, and a deposit was made by the purchaser. In accordance with the Option agreement, the option needed to be exercised within a certain time frame. The purchaser cancelled the Option Agreement and the proposed re-zoning was ratified with the result that any sale must be to The Council.

You put through a submission to the Council for The Property in late 20XX outlining your concerns in relation to the Draft Environmental Plan.

Some months later, you approached The Council to buy The Property.

A valuation was undertaken by The Council.They valued The Property at $XXX,XXX. Several months later, you had your own valuation done on The Property and received a valuation of $XXX,XXX.

An agreement with The Council was made to sell The Property to them. The Contract for Sale was sent to the solicitors for The Council, but the sale was not completed.

Sometime later, you and Person B signed the Contract of Sale for The Property to be sold to The Council. The Council had trouble obtaining access to the property for inspection reports and The Council advised this had been resolved several months later.

Parent B passed away and you then needed to have the contracts amended and new Title Deeds created to proceed.

Your solicitor spoke to The Council officer handling the matter and the officer advised that The Council would not be exchanging contracts for several months due to funding issues.

Contracts were exchanged with The Council and settlement of the sale was due to be effected by the end of the year but was not settled until early the following year.

The executors would like to request an exemption from any Capital Gains Tax that may be applicable, as the long period of time that the Council took to finalise the sale were out of their hands and they were unable to sell their property to anyone else except the Council due to the re-zoning from residential to recreational.

Relevant legislative provisions

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

Reasons for decision

Summary

The Commissioner will grant an extension to the two-year period for disposal of your ownership interest.

Detailed reasoning

Section 118-195(1) of the Income Tax Assessment Act 1997 provides that you can disregard any capital gain or loss made on the sale of an ownership interest inherited from a deceased estate. This is provided that the interest is disposed of within 2 years. In certain circumstances, an extension to this 2-year period may be granted by the Commissioner.

To grant an extension, there needs to be factors outside your control that existed for a significant portion of the first 2 years following the death of the deceased.

Examples of factors that will be considered include legal challenges to the will or ownership of the dwelling, contract of sale falls through for reasons outside your control and complex estates that take an extended period to administer.

Factors that weigh against the exercising of the discretion include delaying sale until a higher price is received, delaying sale whilst renovations occur or unexplained periods of inactivity by the administrator.

In your situation, you placed the property on the market in late 20XX or early the next year. A buyer entered into a contract to purchase the property soon after but failed to exercise the option to purchase the property.The reasons for the contract of sale falling through were beyond your control.

Following this, The Property was rezoned for recreational use, meaning that it could only be sold to The Council.

The death of your other parent resulted in further delays as the title needed to be changed and new contracts drawn up.In addition, The Council had budget constraints which delayed the sale of The Property for several months.

On examination of the relevant facts and circumstances, the Commissioner will grant an extension to the 2-year period for disposal of your ownership interest in The Property.