Edited version of private advice

Authorisation Number: 1051979583344

Date of advice: 12 May 2022

Ruling

Subject: CGT - deceased estate - Commissioner's discretion

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?

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 deceased acquired the property after 20 September 1985.

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

It was not used for income producing purposes before the deceased's death.

Probate was granted on xx/xx/xxxx.

You were the sole executor of the estate and inherited the property as a beneficiary of the estate.

The property was in a state of disrepair at the time of the passing of the deceased.

Following the grant of probate, you developed health issues that prevented you attending to the property for approximately four months.

Between xx/xx/xxxx and xx/xx/xxxx, you arranged for various works to be undertaken at the property. Some of these works were repairs to address safety and compliance issues. However, other works were improvements to the property such as erecting a patio, paving, and laying turf.

The property was rented out between xx/xx/xxxx and xx/xx/xxxx.

The property was listed for sale early in xxxx with settlement occurring on xx/xx/xxxx.

Relevant legislative provisions

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

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 granting of an extension.

In your circumstances, the delay was predominantly caused by works being undertaken at the property and by the property being rented out for approximately XX months. Whilst some of the works that were undertaken at the property were repairs to address safety and compliance issues, other works are better categorised as refurbishment works to improve the sale price of the property or its ability to be rented.

The refurbishment of the property and its subsequent rental were material to the delay in its disposal. These factors were not out of your control.

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.

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 the 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.