Edited version of private advice

Authorisation Number: 1052008814917

Date of advice: 29 July 2022

Ruling

Subject: Commissioner's discretion - deceased estates

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:

1 July 20xx

Relevant facts and circumstances

The deceased passed away in 20xx.

The deceased acquired the property after 20 September 1985.

The property is less than 2 hectares in size.

The property was the main residence of the deceased throughout their ownership period.

The property has never been used to produce assessable income.

Probate was granted in xx/20xx.

There was a dispute amongst the children of the deceased about the deceased's will. The executor stepped aside to await resolution of the dispute. Legal action was considered but was not instigated. Instead, after a few months the children of the deceased agreed to take no action.

There was a period of delay caused by the executor clearing, cleaning and painting the property.

Restrictions put in place to combat the spread of Covid 19 also caused some delay in selling the property.

You entered into a contract to sell the property in xx/20xx with settlement occurring in xx/20xx.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Reasons for decision

Summary

As there was a significant delay in disposing of the property that was not outside your control, the Commissioner will not exercise his discretion to extend the two year period to dispose of the property.

Detailed reasoning

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.

There was a delay in the administration of the estate whilst the executor waited for the children of the deceased to resolve a dispute about the deceased's will. Legal action was considered but was not instigated. Instead, after a few months, the children of the deceased came to an agreement amongst themselves about the division of the estate and decided to take no further action. This is a factor that weighs in favour of the Commissioner exercising the discretion to extend the two-year period.

Measures introduced to combat Covid 19 also contributed to the delay in disposing of the property. As part of the measures introduced by the State Government to combat the spread of Covid 19, lockdowns were implemented in the local government area where the property is located for parts of the 2020 and 2021 calendar years. Lockdowns were in place between 30 March and 12 May 2020 (43 days), 12 February and 17 February 2021 (5 days), and 15 July and 27 July 2021 (12 days). During these periods, inspections of real estate and on-site auctions were not allowed. However, outside the periods of lockdown on site property inspections and auctions were permitted subject to conditions. The impact of Covid 19 on being able to dispose of the dwelling is therefore considered minimal.

The delay caused by the dispute about the will and Covid related lockdowns only accounts for a small proportion of the overall delay in disposing of the property. There is no adequate explanation for the majority of the delay in disposing of the property. Paragraph 16 of PCG 2019/5 makes it clear that 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 include those listed in paragraph 13 of PCG 2019/5. Relevantly, inconvenience on the part of the executor to organise the sale of the property, and unexplained periods of inactivity by the executor in attending to the administration of the estate are such factors.

We have considered all your circumstances but, as there was a significant period of delay that was not out of your control, the Commissioner will not exercise the discretion to grant an extension of time to dispose of the property.