Edited version of private advice

Authorisation Number: 1051885450630

Date of advice: 11 October 2021

Ruling

Subject: The Commissioner's discretion - deceased's dwelling

Question

Will the Commissioner exercise his discretion to grant you an extension to the two year period for disposal of the pre-CGT 50% ownership interest in the property under subsection 118-195(1) of the Income Tax Assessment Act 1997?

Answer

No.

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 acquired a 50% ownership interest in the property (the pre-CGT 50% ownership interest) when they purchased it as joint proprietors with their spouse before 20 September 1985.

After 20 September 1985 the deceased inherited the remaining 50% ownership share in the property (the post-CGT 50% ownership interest) after the passing of their spouse.

The property was not the deceased's main residence but was not used for income producing purposes. The property was for family members to spend weekends and holidays.

The deceased passed away on xx/xx/20xx.

There were circumstances that prevented the sale of the property for a period.

After those circumstances no longer existed there was a further period before the property was listed for sale.

Relevant legislative provisions

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

Reasons for decision

Under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a trustee or beneficiary of a deceased estate may be able to disregard a capital gain they make on disposal of an ownership interest in a dwelling if their ownership interest ends within two years of the deceased's death, or within a longer period allowed by the Commissioner.

However, subsection 118-195(1) of the ITAA 1997 only applies to either:

•         an ownership interest in a dwelling that the deceased acquired pre-CGT, that is, before 20 September 1985; or

•         an ownership interest in a dwelling that the deceased acquired post-CGT where the dwelling was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income.

An extension to the two year period may be granted in certain circumstances. Examples of these circumstances are outlined in Practical Compliance Guideline 2019/5 The Commissioner's discretion to extend the two year period to dispose of dwellings acquired from a deceased estate (PCG 2019/5).

Application to your situation

As noted, the deceased had two separate ownership interests in the property at the time of their passing. This was their original pre-CGT 50% ownership interest that they acquired on the purchase of the property and the post-CGT 50% ownership interest they inherited when their spouse passed away.

As the dwelling was not the deceased's main residence, the post-CGT 50% ownership interest does not qualify for consideration under subsection 118-195(1) of the ITAA 1997.

Only the pre-CGT 50% ownership interest may qualify for exemption under subsection 118-195(1) of the ITAA 1997 if the Commissioner allows an extension to the two year period.

In considering whether to extend the two year period in subsection 118-195 (1) of the ITAA 1997, all the factors both in favour and against the granting of the Commissioner's discretion must be considered.

It is noted that there were circumstances that prevented the sale of the property for a period. However, after those circumstances no longer existed there was a further period before the property was listed for sale. The property was not listed for sale as soon as practically possible.

We have considered all your circumstances but as there was a significant period of delay that was not out of your control, the Commissioner will not exercise the discretion to grant an extension of time.