Edited version of private advice

Authorisation Number: 1051978286460

Date of advice: 12 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 property and disregard the capital gain or loss you made on the disposal of the dwelling and adjacent 2 hectares of land?

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 on xx/xx/xxxx.

The property was acquired by the deceased post-CGT.

The property was the main residence of the deceased throughout their ownership period.

The property has never been used to produce assessable income.

The property is x hectares in size.

The property is in a regional area and is located on a dirt road approximately x kilometres from the nearest town.

Execution of the estate was put on hold between xx/xxxx and xx/xxxx because of the threat of legal action by one of the beneficiaries of the estate.

On xx/xx/xxxx, the executor of the estate was injured in an accident. The executor's recovery from this accident further delayed administration of the estate.

On xx/xx/xxxx, a real estate agent was engaged to sell the property and the property was listed for sale on xx/xx/xxxx. The initial asking price was $x.

In xx/xxxx, a verbal offer of $x was made on the property. The offer was made subject to the sale of another property. This offer was rejected by the trustee for the estate as being too low and because it was subject to the sale of another property. The offeror was invited to submit a further offer, but no further interest was shown.

In xx/xxxx, a written offer, subject to the sale of another property, was made. The offer was accepted; however, the sale fell through as the offeror's sale did not occur as planned.

On xx/xxxx, an offer of $x, subject to finance, was accepted. However, the offerors failed to secure finance and the sale did not proceed.

In xx/xxxx, the asking price was dropped to $x.

On xx/xx/xxxx, an offer of $x was accepted. Settlement occurred in xx/xxxx.

At all times between xx/xx/xxxx and the signing of the contract of sale the property remained on the market.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 118-200(3)

Income Tax Assessment Act 1997 section 118-195

Reasons for decision

Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss made on a dwelling acquired from a deceased estate may be disregarded 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).

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 the factors that the Commissioner will consider when determining whether to exercise his discretion to extend the two-year period under section 118-195 of the ITAA 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 that existed for a sizeable portion of the first two years and there are no significant factors that weigh against the allowing of an extension.

In your circumstances, there was a delay caused by threatened litigation by one of the beneficiaries of the estate and injuries sustained by the executor in an accident. These factors weigh in favour of the Commissioner exercising the discretion to extend the two-year period.

However, once the property was placed on the market it took over two years to sell. An offer was made shortly after the property was put on the market; however, this offer was rejected as being too low and because it was conditional upon the sale of another property. Despite few offers being made, it took over two years for the asking price of the property to be reduced. This indicates that the sale was delayed by the price the executor was willing to accept for the property. The asking price for the property was a factor that was in the control of the executor.

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 his discretion to grant an extension of time.

This means that the deceased's estate will be liable for tax on the capital gain made on the dwelling, including the adjacent two hectares of land, from the date of the deceased's passing. That is, the cost base of the dwelling including the adjacent two hectares will be its market value at the date of death. The cost base of the remaining x hectares of land not forming part of the adjacent land of the dwelling will be that land's cost base for the deceased at the time of their passing. You will be entitled to the 50% CGT discount in relation to the property.