Edited version of private advice

Authorisation Number: 1051960467639

Date of advice: 15 March 2022

Ruling

Subject: Commissioner's discretion - deceased estate

Question

Will the Commissioner grant an extension to dispose of the Property?

Answer

No

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Deceased) passed away several years ago.

The Deceased left a Will appointing The Public Trustee as the executor of their estate.

The Deceased had a property (the Property). They acquired the Property many years ago.

They lived at the Property until their death and the Property was never used to produce income.

The Deceased's child continued to live in the Property following their death.

The Deceased's child would not vacate the Property when requested, so eviction proceedings were brought against them.

The Property was sold the following year.

Relevant legislative provisions

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

Reasons for decision

Question

Will the Commissioner grant an extension to the 2-year period for disposal of the Property?

Summary

Your circumstances do not meet the criteria for an extension of the 2-year period for disposal. Therefore, the Commissioner will not grant an extension of time for disposal of the ownership interest.

Detailed reasoning

The main residence exemption in section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) applies to disregard a capital gain or capital loss a taxpayer makes from a capital gains tax (CGT) event that happens to a dwelling that is their main residence.

If a taxpayer inherits an ownership interest, subsection 118-195(1) of the ITAA 1997 applies so that any capital gain or capital loss they make from a CGT event that happens in relation to a dwelling or their ownership interest in a dwelling is disregarded if:

•         They are an individual and the interest passed to them as a beneficiary in a deceased estate, or they owned it as the trustee of a deceased estate; and

•         The deceased acquired the ownership interest 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;

•         Their ownership interest ends within two years of the deceased's death, or within a longer period allowed by the Commissioner

Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example:

•         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).

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

Factors that would weigh against the granting of the discretion include:

•         Waiting for the property market to pick up before selling the dwelling.

•         Property used to earn assessable income.

•         Unexplained periods of inactivity by the executor in attending to the administration of the estate.

The above examples are not exhaustive.

In addition, once any circumstances preventing the sale of the Property have been resolved, the Property needs to be placed on the market as soon as possible to enable its disposal.

Application to your situation

You have advised us that the child of the Deceased would not vacate the Property following the death of the Deceased. Several years after the death of the Deceased, an eviction notice was served on the Deceased's child, following which they vacated the Property.

We acknowledge that you had difficulties having the Deceased's child removed from the Property. However, you have not provided sufficient explanation to explain the circumstances that led to the delay in having the Deceased's child being removed and the delay in putting the Property on the market that occurred following eviction of the Deceased's child from the Property.

Therefore, the Commissioner will not grant an extension of time to dispose of the Property.

As the Commissioner has not granted you an extension of time to dispose of the Property, you do not meet the conditions to disregard any capital gains made on the sale of the Property under subsection 118-195 of the ITAA 1997.