Edited version of private advice

Authorisation Number: 1051979497361

Date of advice: 6 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 and disregard the capital gain or loss you made on the disposal?

Answer

No.

This ruling applies for the following period:

The year ending DD/MM/YYYY

The scheme commences on:

DD/MM/YYYY

Relevant facts and circumstances

The deceased passed away on DD/MM/YYYY.

The deceased acquired their ownership interest in the property after 20 September 1985.

The property served as the main residence of the deceased until their passing.

The property was situated on less than 2 hectares of land.

Probate was granted on DD/MM/YYYY.

The Will stated that the dwelling shall not be sold for a period of 6 months after the deceased's date of death to allow their children to make alternative arrangements with regard to alternative residential premises.

On DD/MM/YYYY an exclusive agency agreement was signed to list the property on the market for sale.

The property stayed on the market with the same agency for over one year until DD/MM/YYYY, when the property was listed with another real estate agent, and the asking price was reduced.

You entered into a contract to sell the property on DD/MM/YYYY with settlement occurring on DD/MM/YYYY.

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 the factors that the Commissioner will consider when determining whether or not to exercise their discretion to extend the 2-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 2 years of the deceased's death due to reasons beyond your control.

In considering whether to extend the 2-year period all the factors both in favour and against the granting of the Commissioner's discretion must be considered.

Therefore, we must consider the circumstances between the engagement of the first real estate agent and the settlement date.

From the information provided, the property was on the market for over a year where you did not take additional steps to expedite the sale of the property, other than signing an agreement with a real estate agent. Therefore, it appears as if the decision to not lower the asking price or change real estate agents was based on the desire to hold out until the property market increased and a price closer to the asking price could be obtained. In relation to the prevailing market conditions, PCG 2019/5 maintains that waiting for the market to improve is a factor that would weigh against the exercise of the discretion. In addition, as you did not take additional steps to expedite the sale of the property, there was a period of inactivity of over a year and PCG 2019/5 provides that unexplained periods of inactivity by the executor in attending to the administration of the estate would weigh against the exercise of the discretion.

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. You are also entitled to the 50% CGT discount in relation to the property.