Edited version of private advice

Authorisation Number: 1051975874624

Date of advice: 13 May 2022

Ruling

Subject: Commissioner's discretion - deceased estate

Question

Will the Commissioner allow an extension of time for you to dispose of your ownership interest in the dwelling located at (the property) and disregard the capital gain or loss you made on the disposal?

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 acquired their ownership interest in the property in January of 20XX (post-CGT)

On August 20XX, the deceased signed an option deed allowing Party A the right to purchase the property.

The deceased passed away in January 20XX.

The property was the deceased's main residence just before their death and had not been used for income producing purposes.

Probate was granted in July 20XX.

Party A exercised their right to purchase the property in August 20XX for $X.

The executor of the estate disputed the contract as invalid due to Party A not complying with the terms of the options deed.

Party A commenced legal proceedings in 20XX.

Legal proceedings end in March 20XX.

The property was now free to be sold.

A for sale sign was placed at the property but a real estate agent was not engaged, and the property was not marketed.

In April 20XX Party A made an offer to purchase the property for $X.

In September 20XX the property went under contract to Party A.

In October 20XX the property settled.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Reasons for decision

Practical Compliance Guideline PCG 2019/5: The Commissioner's discretion to extend the two-year period to dispose of dwellings acquired from a deceased estate outlines what factors are considered when deciding whether the Commissioner will exercise their discretion to extend the two-year period under section 118-195 of the Income Tax Assessment Act 1997. Generally, the Commissioner will allow a longer period where the sale of the dwelling could not be settled within two years of the deceased's death due to reasons beyond your control.

In considering whether to extend the two-year period all the factors both in favour and against the granting of the Commissioner's discretion are considered. It is noted that there was an option deed on the property and that the estate was required to allow time for Party A to exercise their right of this option should they choose to. It is also noted that the property did go under contract with Party A but a legal dispute over the contract price caused a significant delay and legal proceedings ended in March 20XX.

You state that after the legal dispute ended the estate was then free to sell the property, however, because Party A had purchased all the land around the property the estate did not realistically have any other option than to sell the property to Party A. A real estate agent was not appointed but a for sale sign was erected on the property.

In considering whether to extend the two-year period, we weigh up all of the factors (both favourable and adverse) having regard to the facts and circumstances of the case. PCG 2019/5 states that a favourable factor to extend the two-year period is if the dwelling is listed for sale as soon as practically possible after the circumstances that were delaying the sale ended. In your case the property was not listed for sale once it became available to, which constitutes a period of inactivity by the executor in attending to the administration of the estate.

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. Therefore, any capital gain made on the property from the date the deceased passed away until the property was disposed of will be subject to tax. That is, the first element of your cost base for the property is its market value on the deceased's date of death.