Edited version of private advice

Authorisation Number: 1052006088031

Date of advice: 25 July 2022

Ruling

Subject: Commissioner's discretion - deceased estate

Question

Will the Commissioner use his discretion to allow an extension of time to the two year limit for you to dispose of your ownership interest in the property and disregard the capital gain you make on the disposal?

Answer

Yes.

Having considered your circumstances and the relevant factors, the Commissioner will allow an extension of time. Further information about the Commissioner's discretion can be found by searching ato.gov.au for 'QC 66057'

This ruling applies for the following period:

30 June 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

The deceased pass away on DD Month 20xx.

At the date of death, the deceased was the sole proprietor of a dwelling.

The deceased left a will dated DD Month 19xx appointing Child as executor.

The dwelling had been the deceased's main residence prior to her passing away.

The dwelling has not been used for the purpose of producing assessable income.

Child was diagnosed with a medical condition in Month 20xx.

Child's medical condition and subsequent treatment caused her immune system to become suppressed and with the advent of COVID-19, Child was unable to venture out in public.

COVID-19 restrictions delayed Child's ability to prepare the dwelling for sale.

The dwelling was placed on the market in Month 20xx and was sold on Month 20x1

Relevant legislative provisions

Income Tax Assessment Act 1997

Part 3-1

Paragraph 118-130(a)

Section 118-195

Subsection 118-195(1)

Reasons for decision

Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain arises where a capital gains tax (CGT) event occurs and the amount the taxpayer receives exceeds the total costs associated with that CGT event. A capital loss can occur where the amount the taxpayer receives is less than the reduced cost base of the CGT asset.

Section 118-195 of the ITAA 1997 provides a CGT exemption for trustees where certain CGT events happened to a dwelling they acquired from a deceased estate. Subsection 118-195(1) of the ITAA 1997 provides that a capital gain or loss in this circumstance will 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 two years of the deceased's death, or within a longer period allowed by the Commissioner.

Paragraph 118-130(1)(a) of the ITAA 1997 provides that you have an ownership interest in a dwelling if you have a legal interest in the dwelling. This means that if you sell the dwelling, your legal interest in the dwelling continues until the date of settlement and not the date the Contract of Sale was signed.

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 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.

The Commissioner provides the following non-exhaustive list of situations in which he may be expected to exercise the discretion to extend the time period in which you can dispose of the property:

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

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

In determining whether to grant an extension, the Commissioner will also consider the sensitivities of your personal circumstances and/or of other surviving relatives of the deceased.

In your circumstances, the Commissioner considers that you were unable to attend to the deceased estate due to serious personal circumstances arising during the two year period. The Commissioner accepts that your medical condition affected your ability to attend to the deceased estate. The Commissioner also accepts that once you were able to attend to the sale of the dwelling, you actively managed it until the time of sale.

Accordingly, the sale of the dwelling will be exempt from CGT pursuant to section 118-195 of the ITAA 1997.