Edited version of private advice

Authorisation Number: 1051986259926

Date of advice: 2 June 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 xx and disregard the capital gain or loss you made on the disposal?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

The deceased purchased the dwelling located at xx (the dwelling) prior to 20 September 1985.

The dwelling and the property it stands on is less than 2 hectares in size.

The deceased passed away on xx.

Probate was granted on xx from the Supreme Court of NSW.

Your other parent passed away in 20xx.

The dwelling had been the main residence of both your parents from the date of purchase of the dwelling in 19xx up until their passing.

Executors under the probate and the beneficiaries of the Will are xx, xx and xx, children of the deceased.

In 20xx your family experienced a sudden and tragic loss which resulted in plans for selling the family home put aside until the beginning of the 20xx year.

In 20xx you discovered that an easement at xx owned by Corporation A was situated beside the dwelling to which the deceased had informal ongoing use of the driveway.

On xx 20xx Corporation A was approached as the registration of the Right of Carriageway.

Various requisitions were received from Land Registry Services following this.

Sale of the dwelling was about to go ahead notwithstanding you had knowledge that prospective buyers would either want to renovate or demolish the dwelling and rebuild.

To realise the full potential of the block you approached Corporation A to obtain a formal granting of use of the easement driveway for the new owners.

On xx 20xx executors paid $xx to Corporation A in payment of Right of Carriageway (ROC).

On xx 20xx a caveat was registered on Corporation A Title from xx of xx who were the neighbours on the other side of the easement - the caveat blocked your attempts to register for a ROC across the easement.

On xx 20xx a letter was received from Corporation A advising they had issued instructions to remove the caveat.

On xx 20xx Corporation A confirmed the removal of the caveat from Title and a Transfer Granting Easement was issued on xx 20xx.

On xx 20xx the property was listed with xx and advertising began in xx 20xx.

In 20xx COVID issues in xx resulted in enduring months of lockdowns and hardships.

On xx 20xx, Sales Advice was issued by xx as to a proposed purchaser - the purchaser had difficulty with finance.

On xx xx 20xx a Further Sales Advice was issued by xx.

On xx xx 20xx the property was sold with contracts for sale exchanged.

On xx xx 20xx settlement of the property occurred.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 118-195

Reasons for decision

A capital gain or capital loss may be disregarded under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) where a capital gains tax (CGT) event happens to a dwelling if it passed to you as an individual and a beneficiary of a deceased estate or you owned it as the trustee of the deceased estate.

For a dwelling acquired by the deceased prior to 20 September 1985, you will be entitled to a full exemption if:

•         the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of the following individuals:

-       the spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased)

-       an individual who had a right to occupy the dwelling under the deceased's will, or

-       an individual beneficiary to whom the ownership interest passed and the CGT event was brought about by that person, or

•         your ownership interest ends within two years of the deceased's death.

In your case, when the deceased died, the dwelling passed to you and your siblings. The dwelling was purchased prior to 20 September 1985 and was the deceased's main residence prior to their death. At that time, it was not being used to produce assessable income.

The dwelling was not the main residence of one or more individuals listed above under dot point 1, therefore this basis of exemption is not available.

Furthermore, you and your siblings' ownership interests did not end within two years of the deceased's death. The dwelling sale settled more than two years after the deceased's death, therefore, the alternative basis of exemption is also not satisfied.

However, subsection 118-195(1) of the ITAA 1997confers on the Commissioner discretion to extend the two-year exemption period.

The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion:

•         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), or

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

The delay in disposing of the dwelling was due to you seeking a formal granting of use of the easement at xxxx.

Use of the easement was not granted until xx 20xx following removal of a caveat. The dwelling was then listed with xx on xx 20xx.

In determining whether or not to grant an extension, the Commissioner is expected to consider the circumstances that cannot be material to delays in disposal. One of these circumstances is a delay due to refurbishment of a house to improve the sale price.

The significant delay in disposing of the dwelling was for the purpose of realising the full potential of the block when it became known that an easement existed near the dwelling. This delay in itself was responsible for associated ensuing delays.

The pandemic did not play a significant role in delaying the sale of the property. There were only lockdowns for part of the overall period.

There were not sufficient legal impediments that either prevented or hindered the Executors from putting the dwelling on the market.

Having considered the relevant facts, the Commissioner will not apply his discretion under subsection 118-195(1) of the ITAA 1997.