Edited version of private advice

Authorisation Number: 1051891487676

Date of advice: 26 August 2021

Ruling

Subject: CGT - deceased estate

Question

Will the Commissioner exercise his discretion to extend the 2-year period under section 118-195 of the Income Tax Assessment Act 1997 for a property situated in Australia?

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 mid-20XX

The property was purchased by the deceased jointly with the spouse in 19XX, before the introduction of capital gains tax (CGT) in Australia. The deceased's spouse predeceased the deceased, leaving the deceased with sole occupancy of the property.

The property remained in joint names until recently when it was transferred to the name of the deceased's estate.

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 XXX square metres.

The property was not rented or used for an income producing purpose.

The property was occupied after the death of the deceased by one beneficiary. This beneficiary paid no rent to occupy the property and vacated the property just before it was listed for sale. It was only after the beneficiary vacated the property that it could be offered for sale.

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

There were several significant issues to be overcome before the property could be offered for sale. These issues included deciding whether to subdivide the property or to sell it intact, the share of the estate to be paid to each beneficiary and the refusal of one beneficiary to provide copies of documents or any cooperation in finalising the estate.

Legal action was taken by both beneficiaries to clarify these issues.

Initially, one beneficiary lodged an action in the Supreme Court. In mid-20YY this court ordered that the other beneficiary deliver the original will. Shortly after this, the trustees obtained a grant of probate.

However, in early 20ZZ another beneficiary instituted legal proceedings seeking a larger share of the estate. This claim was settled in mediation.

After this, the property was vacated and the trustees took steps to arrange a sale.

The estate then listed the property for sale in late 20YY. A contract of sale was signed in early 20ZZ and settlement occurred shortly after.

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 ITAA 1997 states that if you own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an estate), then you are exempt from tax on any capital gain made on the disposal of the property if:

•         the property was acquired by the deceased before 20 September 1985, or

•         the property was acquired by the deceased on or after 20 September 1985 and 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, and

•         your ownership interest ends within 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances).

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 is 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 the legal dispute between the beneficiaries. Whilst one beneficiary lived at the property after the death, the will did not provide authority for occupation after the death of the owner.

Initially one beneficiary favoured sub-division of the property, while another preferred to sell the property. One beneficiary refused to apply for a grant of probate and refused to provide the original will of the deceased, which was required to apply for probate. These disagreements delayed the processes of probate and the various steps required to settle the estate.

Eventually, these disagreements were only resolved by the legal actions and resolved in late 20YY.

The Commissioner accepts that various disputes and the eventually legal disputes were the reasons for the delayed sale and the failure to sell within 2 years.

Having considered the circumstances and the factors outlined above, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time until settlement.