Edited version of private advice

Authorisation Number: 1051861781798

Date of advice: 6 July 2021

Ruling

Subject: CGT - deceased estate

Question

Will the Commissioner exercise his discretion to extend the 2-year period to XX XXXX 20XX under section 118-195 of the Income Tax Assessment Act 1997 for a residential property situated in Australia for you to dispose of your ownership interest in the dwelling and disregard the capital gain or loss you make on disposal??

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The deceased died in late-20XX.

The property was purchased by the deceased in 19XX.

The Trustees experienced considerable difficulties preparing the property for sale as it was necessary to remove considerable material. This and other factors initially delayed the process of listing the property for sale.

The property was used as the main residence of the deceased until the death of the deceased. The property is built on a block of land with an area of less than 2 hectares.

The property was first offered for sale in early 20XX. A contract of sale was signed shortly after the property was listed for sale. The purchasers sought several extensions to obtain finance but due to Covid related business difficulties, were eventually unable to obtain finance. As a result, the property sale was not settled.

The property was again offered for sale and a second contract of sale was signed approximately a year later. The property settled in early 20YY, approximately XX months after the death of the deceased.

The property has never been rented during its ownership by the deceased or in the period after his demise and before settlement.

There was no provision in the will to allow the property to be occupied after the death of the owner and the property was unoccupied after the death of the owner.

Relevant legislative provisions

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

Reasons for decision

A capital gain or capital loss is made as a result of a capital gains tax (CGT) event happening to a CGT asset (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)). The most common CGT event is CGT event A1 the disposal of a CGT asset.

Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that if you owned a dwelling as the trustee of a deceased estate, then you are exempt from tax on any capital gain made on the disposal of the property acquired by the deceased on or after 20 September 1985 if:

the dwelling was, from the deceased's death until your ownership interestends, the main residence of one or more of:

(a) the spouse of the deceased immediately before the death (except a spousewho was living permanently separately and apart from the deceased); or

(b) an individual who had a right to occupy the dwelling under the deceased's will; or

(c) if the CGT event was brought about by the individualto whom the ownership interest passed as a beneficiary--that individual

You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed).

The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion to extend the time period in which you can dispose of the property:

•                     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-year 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 circumstances outside the beneficiary or trustee's control.

In determining whether to grant an extension the Commissioner is expected to consider whether, and to what extent, the dwelling was used to produce assessable income and how long the trustee or beneficiary held it.

In this case there was a delay from the date of death to the settlement of the property.

The delay was predominantly due to circumstances resulting from the Covid pandemic and the resulting changes to local business circumstances. The prospective purchasers owned local businesses that closed due to the Covid pandemic. As a result, they were unable to obtain finance for the purchase and it was then necessary to offer the property for sale again.

The Commissioner regards the circumstances relating to the delay in the sale of the property as being beyond the control of the Executors.

These delays were caused by circumstances outside the Executor's control. The Commissioner will therefore exercise his discretion to extend the 2-year time limit to the settlement date.