Edited version of private advice

Authorisation Number: 1051987586062

Date of advice: 26 May 2022

Ruling

Subject: CGT - 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?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20xx

The scheme commences on:

Xx xxxx 20xx

Relevant facts and circumstances

The deceased passed away on xx/xx/xxxx.

The deceased acquired the property after 20 September 1985.

The property is less than 2 hectares.

The deceased moved into a nursing home in 20xx.

The property had been rented out for less than 6 years at the time of the deceased's passing. The deceased's trustees elected to make the absence choice in relation to the property to continue to treat the property as the deceased's main residence from when the property had first been available for rent until the date the deceased passed away.

The property continued to be rented out for the majority of the period from after the passing of the deceased until its sale.

The property was placed on the market on xx/xx/xxxx (before the deceased passed away) and remained on the market after the passing of the deceased until a contract of sale was entered into on xx/xx/xxxx.

The asking price when the property was placed on the market was $x.

There was limited interest in the property.

In xx/xxxx, the asking price was reduced to $x to further encourage potential buyer interest.

In xx/xxxx, new photos, fresh marketing, and social media marketing were undertaken. At the same time the asking price was reduced to 'offers over $x'.

In xx/xxxx, the property was then advertised with no list price.

The property sold in xx/xxxx for $x.

The offer that was accepted was the only offer that was made for the property since it was placed on the market in xx/xxxx.

A valuation undertaken in xx/xxxx put the value of the property on the deceased's date of death at somewhere between $x and $x with a midpoint of $x.

Settlement occurred on xx/xx/xxxx.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Reasons for decision

Summary

The delay in disposing of the property was due to the length of time it was on the market. A major determinant of the length of time it will take to sell a property is its asking price which is within your control.

After the passing of the deceased, the property remained on the market for over 12 months before the asking price was reduced. Also, a valuation of the property undertaken in xx/xxxx put the value of the property as at the deceased's date of death as much lower than the price that was being asked for the property at that time. This indicates that not everything that was in your control was done to achieve a sale within the two-year period.

Detailed reasoning

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 significant portion of the first two years.

In your circumstances, the delay in disposing of the property was due to the length of time the property was on the market. After the passing of the deceased the property was on the market for over a year before measures were taken to lower the asking price and undertake further marketing of the property. Even when the asking price was lowered it was still significantly above the valuation of the property as at the deceased's date of death. It was several more months before the property was listed with no asking price. The ultimate sale price of the property in xx/xxxx was greater than its valuation as at the deceased's date of death. This indicates that the sale was delayed due to the price you were willing to accept for the property. The asking price for the property was a factor that was within your control.

It is also noted that the property was rented out for the majority of the period from the date the deceased passed away until it was sold. This is a factor that would weigh against the granting of an extension of time.

We have considered all your circumstances but, as the period of delay was due to a factor that was within your control, the Commissioner will not exercise his discretion to grant an extension of time.

We acknowledge that the extension of time required is not substantial. However, PCG 2019/5 states that we will not allow a longer period for even a very short period beyond two years if there are no factors beyond your control present.