Edited version of private advice

Authorisation Number: 1051935157308

Date of advice: 25 January 2022

Ruling

Subject: Extension of time

Ruling Question

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

Answer

No.

This ruling applies for the following period

Year ended 30 June 2021.

The scheme commences on

1 July 2016.

Relevant facts

The deceased acquired a dwelling (the dwelling).

The deceased passed away in 20xx. (The deceased)

The dwelling is located on land that is less than two hectares.

The dwelling was the deceased's main residence.

The dwelling was the deceased's main residence. Initially the family sought to sell the house before settling the estate, as your solicitor advised it would be easier to do so than transferring it into the children's names.

The executors of the estate were your sibling who resides in X and your sibling who resides in Y. The distance was challenging in finalising the estate.

The dwelling was listed for sale on in 20xx with an asking price of $xx.

No offers were received for the dwelling and the asking price was reduced to $Y in XX 20YY.

Because the family wanted to finalise the estate, they decided to transfer the property to you and your sibling, in 20xx.

It was decided to transfer the title to the dwelling to you and your sibling on xx yy 20xx.

The dwelling was sold and settlement occurred in 20xx for a further reduced price of $Z.

The dwelling was listed for sale on a number of online real estate sites.

You also advertised periodically in the local newspaper.

You had a for sale sign erected on the property and in the window.

Three interested parties inspected the dwelling. You accepted the only offer.

You did not list the dwelling for sale by auction.

You did not have an 'open' house.

The dwelling was used occasionally by family members.

Relevant legislative provisions

Income Tax Assessment Act 1997 subdivision 115-A

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 118-120

Income Tax Assessment Act 1997 section 118-130

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 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), or

•                    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.

Subsection 118-195(1) of the ITAA 1997 confers on the Commissioner the discretion to extend the two-year period 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).

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-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 reasons outside the beneficiary or trustee's control.

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.

None of the factors that would normally justify an extension of the time period to dispose of a deceased estate property are present in your case.

In your case, the delay in the disposal of the dwelling appears to be attributed to the accessibility to the property (travelling distance) for the purpose of finalising the estate and the market demand.

The executor had a number of responsibilities in winding up the estate of the deceased and one of these was to do with the ownership of the dwelling. We acknowledge that the executor had reduced the asking price for the dwelling in an attempt to attract potential buyers. However, we consider that further steps were required to be undertaken to ensure the sale occurred within a timely manner other than reducing the asking price. You are required to actively manage the sale. The eventual sale did not occur until almost four years had passed from the date of death.

Having considered the relevant facts, we are of the view the delays were not caused by circumstances outside the executor's control. Therefore the Commissioner will not apply his discretion under subsection 118-195(1) of the ITAA 1997 to allow an extension to the two-year time limit.

The normal capital gains tax (CGT) rules will apply to the disposal of the property.