Edited version of private advice

Authorisation Number: 1051987941818

Date of advice: 8 June 2022

Ruling

Subject: CGT - deceased estate

Question

Will the Commissioner exercise his discretion under section 118-195 of the Income Tax Assessment Act 1997 to extend the two-year period until XX March 20XX to dispose of the deceased's ownership interest in the dwelling for up to 2 hectares?

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 owned the property which was inherited from the spouse on XX/XX/XXXX.

The deceased treated this property as their main residence until the date of their death.

The deceased lived in a nursing home at their date of death, the property was being rented out while the deceased was in the nursing home.

The property comprises more than 2 hectares.

In early 20XX your family received a notice from Transport NSW stating that the property was subject to a planned road corridor for the future of State A and found 'blue lines' through the property.

In June 20XX you protested and received a letter confirming plans were not to go ahead.

The 'blue lines' remained on Transport State A public documents from that time throughout 20XX and up to and including time of marketing the property. This resulted in unstable property prices in the area and prospective buyers questioning the plans.

The deceased died on XX/XX/XXXX

Months after the deceased died the property was rented out and started earning assessable income.

In early 20XX, you started clearing the property and getting rid of farm junk, old fences and removing sheds.

On XX/XX/XXXX you applied for a private ruling. On XX/XX/XXXX you were asked the withdraw the private ruling as the property was not yet sold.

In early 20XX you had discussions with a local real estate agent who described limited conditions of sale and suggested it would be best to wait until after covid restrictions settle as to maximise the marketing campaign.

Throughout 20XX you continued preparing the property and undertook activities such as property clearing, tree felling, pile burning, multiple tip and recycling runs, fencing, shed demolition, concrete slabs excavation and removal and slashing and mowing.

In MM 20XX you got the property surveyed.

In MM 20XX you started seeking real estate agents and interviewed 3 agents.

In MM 20XX you were unable to get a fencing contractor and did fencing of the property yourselves.

On XX/XX/XXXX you had photographs taken of the property.

On XX/XX/XXXX the property was listed for sale.

On XX/XX/XXXX the property sold at auction.

On XX/XX/XXXX the sale of the property was settled, and titles were transferred.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Reasons for decision

Subsection 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) states 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 estate 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 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 dwelling 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.

Factors that would weigh in favour of the Commissioner allowing a longer period include:

•         the ownership of the dwelling, or the will, is challenged;

•         a life or other equitable interest given in the will delays the disposal of the dwelling;

•         the complexity of the deceased estate delays the completion of administration of the estate; or

•         settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of your control.

The absence of some or all of those favourable factors does not necessarily preclude us from allowing a longer period.

There are several factors that mitigate against the granting of the discretion. These include:

•         waiting for the property market to pick up before selling the dwelling;

•         delay due to refurbishment of the house to improve the sale price;

•         inconvenience on the part of the trustee or beneficiary to organise the sale of the house; or

•         unexplained periods of inactivity by the executor in attending to the administration of the estate

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

In this case, it is noted that you chose to rent out the property XX months after the deceased's death. In this regard, we consider that you had the opportunity to sell the property but made the decision not to do so.

Further you stated that you agreed with your selling agent to hold off on selling the property due to the prevailing economic uncertainty and because of the COVID-19 restrictions. In relation to the prevailing market conditions, as stated above, paragraph 13 of PCG 2019/5 states that waiting for the market to improve is a factor that would weigh against the exercise of the discretion.

It is also noted that COVID-19 impacted the movement of individuals and ability of prospective buyers to view properties throughout parts the 20XX and 20XX calendar year. However, this reason alone is not sufficient enough to support that the delay in the sale of the property was outside of your control.

You also stated that you spent a significant period of time throughout 20XX preparing the property sale. We consider that delays due to refurbishment of the property to improve the sale price is mitigating factor against the granting of the discretion.

We have considered all of the circumstances you have provided but, as there was a significant period of delay that was not outside 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, however you will be entitled to a 50% discount on the CGT if you own the property for at least 12 months.