Edited version of private advice

Authorisation Number: 1051995502449

Date of advice: 22 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 to dispose of your ownership interest in the dwelling located at the property and disregard the capital gain or loss you made on the disposal of the dwelling?

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 owned the property which they purchased on XX May 20XX.

The property was the deceased main residence until the time of their death.

The deceased did not use the property for income producing purposes at the time of their death.

The property comprises of XXX square metres.

The deceased died on XX October 20XX.

In late 20XX the executor and beneficiaries began clearing the property.

On XX January 20XX probate was granted.

In early 20XX the executor had been in contact with two real estate agents.

On XX April 20XX the Will was challenged by the deceased's niece.

On XX May 20XX the executor made first contact with contractors to remove hazardous waste from the property.

On XX June 20XX the executor's father was taken to hospital.

On XX June 20XX the executor father was transferred to palliative care.

On XX June 20XX the executor's father passed away.

On XX July 20XX the executor's father's funeral was held.

On XX July 20XX the challenge of the Will was finalised.

On XX August 20XX the contractors collected the hazardous waste from the property.

On XX August 2019 the executor's mother had a medical procedure.

The deceased's belongings consisted of large amount of materials relating to their hobby at the property, four secure storage units and carport storage at the local XX and a large amount of material in storage at XX.

These items had been partially cleared by the end of 20XX.

On 31 March 2020 COVID-19 lockdown was announced and during this time the local the Salvation Army, Vinnies and Lifeline collection services were closed down.

In April 20XX the executor met with one of the real estate agents and discussed a potential sales plan going forward to get an idea of timeline and costs. There was an uncertainty about the process since restrictions on open-house inspections has been introduced. No agency agreement was signed as the house was still not ready for sale as there were still items of furniture and rubbish that needed to be cleared.

On XX April 20XX the first council clean-up was organised.

In late May - early June 20XX inspections were arranged for the Salvation Army, Vinnies and Lifeline collection services came to look at the furniture at the property but rejected most of it.

On XX May 20XX the second council clean-up was organised.

On XX July 20XX items were moved to another property and an additional council clean-up was organised from that property.

In early 20XX scrap metal was taken to the tip.

Throughout March and April 20XX the executor was in contact with several real estate agents.

In May 20XX a real estate agent was selected.

On XX June 20XX the property was sold at auction.

On XX August 20XX 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 the Will was challenged by the deceased's niece. However, this challenge was resolved on XX July 20XX and the property was not settled for another 25 months after this was resolved. We consider this to be a significant amount of time to sell the property.

Further you stated that you had discussions with real estate agents in April 20XX and discussed the uncertainty around the sale process since restrictions on open-house inspections had been introduced. As stated above, paragraph 13 of PCG 2019/5 provides 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 2020 and 2021 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 have also stated that the significant delay was caused by the volume of items that the deceased owned and the process of clearing them to prepare the property for sale. Furthermore, we note that you chose to utilise charity organisations and the local council in the removal of the items from the property, which contributed to the significant delays in clearing the property. In this regard, we consider the delays were not outside your control as there were alternative means of clearing the property. In addition, we consider the clearing of the items from the property was for the purpose of improving the sale price, which is a mitigating factor against the granting of the discretion.

We have considered all of the circumstances you have provided by, as there was a significant period of delay that was not outside 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.