Edited version of private advice

Authorisation Number: 1052018053482

Date of advice: 8 August 2022

Ruling

Subject: CGT - deceased estate

Question

Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time to the two year period to dispose of the inherited property?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Your parent died on XX XXX 20XX. The 2 year period expired on XX XXX 20XX.

Probate was applied for on XX XXX 20XX and granted on XX XXX 20XX.

The PROPERTY was originally purchased on XX XXX 19XX and was the deceased principal place of residence for the entire time leading up to their death. The property had never been used to produce income throughout its ownership.

The PROPERTY was placed on the market on XX XXX 20XX.

After being listed for sale, the agent held weekly open for inspections on the property. These were attended by few prospective purchasers and some opens had no attendees. You were in weekly contact with your agent during this period.

The PROPERTY was taken to auction on XX XXX 20XX however, was passed in at auction.

From XX XXX 20XX until XX XXX 20XX COVID lockdown 4 occurred restricting travel and open for inspections were prohibited during this time. The property did remain for sale during this period however.

The PROPERTY was sold on XX XXX 20XX and settlement was on XX XXX 20XX.

The purchase's required finance approval and a settlement period of XX days. The XX day settlement resulted in the property being settled outside of the 2 year timeframe.

Only minor sundry repairs were performed on the PROPERTY prior to sale and the PROPERTY was sold in the same condition as it was when your parent passed.

During the first 2 years after your parent's death, you were co-executor on your parent's estate and executor on your parent's estate.

More than 12 months was spent addressing the mandatory priority of your parent's estate and your co-executor's legal action against their estate.

This delayed the processing of both estates, added complexity to the performance of your executor responsibilities and delayed the administration of both estates and the sale of the PROPERTY.

Summary of Event which contributed to the delay in sale of the property are as follows:

1      Compulsory priority of your parent's estate from XXXX to XXXX. On XXXX your co-executor also abandoned their estate responsibilities and initiated legal action against you on XXXX

2      Illness period from XXXX to XXXX and XXXX to XXXX. Your doctor ordered complete rest due to flu and stress and issued doctors certificates for these periods.

3      Completion and reconstruction of your parent's tax returns not lodged for the years 20XX to 20XX and other investment work from 20XX to 20XX as these were to be lodged within 6 months of death.

4      Delay in obtaining probate to administer your parent's estate. This was obtained on 20XX. On 20XX the lawyer was initially engaged for the probate work. The lawyer then went on holidays until 20XX. On 20XX you drafted a statement of assets and liabilities for probate and submitted this to the lawyer. The lawyer went on Christmas break from 20XX until 20XX. From 20XX to 20XX more legal input to legal letters was required before probate was granted on 20XX.

5      Initiation of legal action against you from your co-executor from 20XX to 20XX. On 20XX papers were filled in the supreme court to have you removed as co-executor of your parent's estate. The action for executor removal required extensive work from when court orders were received up until 20XX when a mediation agreement was signed by both parties.

6      Post remediation responsibilities from 20XX to 20XX.

7      Property distance and upkeep. The property is a X hour drive from your location.

8      COVID Restrictions - from 20XX COVID restricted activity at the property and from 20XX until 20XX there was a complete ban on travel in and around the City.

9      Assault on you - from 20XX to 20XX you were incapacitated due to the injuries sustained in the assault. Further time was spent applying for an Aggravated Violence Order (AVO) along with court appearances for the AVO. This AVO has been extended and now operates until 20XX.

10   Work on distributions - From 20XX to 20XX, processing activities on your parent's estate increased. These beneficiary requests added further complexity to the management of the estate and delayed as it was compulsory to answer the correspondence

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 subsection 118-130(3)

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 subsection 118-195(1)

Reasons for decision

In certain circumstances, section 118-195 of the ITAA 1997 provides that the trustee of a deceased estate may disregard an assessable gain or loss made from the disposal of a property that passed to them in their capacity as trustee of a deceased estate 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 2 years of the deceased's death.

The Commissioner has discretion to extend the two year time period where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death. This discretion may be exercised in situations such as where:

1.    the ownership of a dwelling or a will is challenged;

2.    the complexity of a deceased estate delays the completion of administration of the estate;

3.    a trustee or beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the two-year period (for example, the taxpayer or a family member has a severe illness or injury); or

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

These examples are not exhaustive but provide guidance on what factors the Commissioner would consider reasonable to exercise his discretion to extend the two year period to dispose of an inherited property.

Whether the Commissioner will exercise his discretion under subsection 118-195(1) of the ITAA 1997 will depend on the facts of each case.

We have taken the facts of your situation into consideration when determining whether the Commissioner's discretion would be exercised to extend the two year period and allow an extension to the two year period until settlement on the disposal of the dwelling occurred. Therefore, any capital gain made on the disposal of the dwelling can be disregarded.

We accept that the reason for the delay in the disposal of the deceased's dwelling was due the reasons provided in your private ruling application.