Edited version of private advice

Authorisation Number: 1051987956224

Date of advice: 1 June 2022

Ruling

Subject: CGT - deceased estate - 2-year 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:

1/7/20XX

Relevant facts and circumstances

The deceased passed away in 20XX.

The deceased acquired the property before 20 September 1985.

After the passing of the deceased, you decided to renovate the property as you did not think it would sell because the property needed extensive renovation and there was a severe real estate downturn due to drought in the area.

As the estate did not have sufficient funds to carry out the renovation works all at once, the renovations were undertaken over time as cash became available.

You entered into a contract to sell the property in 20XX with settlement occurring two months later.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

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, amongst other things:

•         the property was acquired by the deceased before 20 September 1985; 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 caused by the decision to renovate the property and to wait until market conditions improved. As detailed in paragraphs 13 and 16 of PCG 2019/5, these are factors that weigh against the Commissioner exercising his discretion to extend the two-year period to dispose of a dwelling acquired from a deceased estate.

Paragraph 19 of PCG 2019/5 states that we will not allow a longer period for even a very short delay beyond two years if there are no relevant circumstance present.

We have considered all your circumstances but, as there are no relevant circumstances present to justify an extension to the two-year period allowed to dispose of a dwelling from a deceased estate, the Commissioner will not exercise his discretion to allow an extension.