Edited version of private advice

Authorisation Number: 1051857019785

Date of advice: 29 June 2021

Ruling

Subject: CGT - deceased estate - two- year extension

Question

Will the Commissioner allow an extension of time to XXXX for you to dispose of your ownership interest in the dwelling to disregard the capital gain you made on the disposal?

Answer

No.

This ruling applies for the following period periods:

Year ended 30 June 2019

The scheme commences on:

1 July 2018

Relevant facts and circumstances

The deceased died in the 2006 income year.

The property was purchased post CGT by the deceased and they were the sole owner.

The property was the main residence of the deceased just before they died.

The property was over two hectares in size.

Probate was granted in the 2009 income year.

The nominated executors declined to administer the estate and you and your sibling obtained letters of administration in XXXX.

You and your sibling engaged a solicitor to assist with the administration of the estate.

Not only were the family dynamics difficult and complex, the lawyer had the key role in directing the process of resolving the Estate matters. The lawyer made it clear that given the unfolding circumstances and the number of parties involved that the process would take time.

The lawyer recommended that the property they held (and not liquidated) until there was an opportunity to understand and resolve matters with all linked parties.

You had a strained relationship with your parent and the last time you saw them before they died was at a family event some years earlier.

You had no knowledge of your half sibling until after the deceased death.

A full detailed list of events was provided.

The property was put on the market and was sold in a month or two. The new buyer wanted to settle quickly in the end.

The property sold in the 2019 income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-195

Reasons for decision

A capital gain or capital loss may be disregarded under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) where a capital gains tax event happens to a dwelling if it passed to you as an individual and a beneficiary of a deceased estate or you owned it as the trustee of the deceased estate.

For a dwelling acquired by the deceased prior to 20 September 1985, you will be entitled to a full exemption if:

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

-the spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased)

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

-an individual beneficiary to whom the ownership interest passed and the CGT event was brought about by that person, or

-your ownership interest ends within two years of the deceased's death.

For a dwelling acquired by the deceased on or after 20 September 1985, the dwelling must have been used as the deceased's main residence just before their death and not used to produce assessable income at that time.

Subsection 118-130(3) of the ITAA 1997 provides that where the sale or other disposal of the dwelling proceeds under a contract, the ownership interest ends at the time of settlement of the contract of sale and not at the time of entering the contract.

The dwelling sale settled more than two years after the deceased's death.

However, subsection 118-195(1) of the ITAA 1997 confers on the Commissioner discretion to extend the two years exemption period.

The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion:

• the ownership of a dwelling or a will is challenged

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

• a trustee or beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the two years period (for example: the taxpayer or a family member has a severe illness or injury), or

• settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for reasons outside the beneficiary or trustee's control.

In determining whether or not to grant an extension the Commissioner is also expected to consider whether and to what extent the dwelling is used to produce assessable income and how long the trustee or beneficiary held it.

In your case while the Commissioner is empathetic to the circumstances surrounding your relationship with your Parent and other family members along with the long and protracted nature of the circumstances around organising your parent's affairs, nothing actually prevented you from selling the property.

The Commissioner understands that you were advised to refinance the property and rent it out, but this was a decision you made as executor of the estate.

The property was rented out for more than XX years and this is a substantial amount of time.

There was nothing that occurred which complicated things to the extent that prevented you from selling the property.

Therefore, the Commissioner will not exercise the discretion to extend the two-year time period in order to sell the property.