Edited version of private advice

Authorisation Number: 1052069749706

NOTICE

The private ruling on which this edited version is based has been overturned on objection.

This notice must not be taken to imply anything about the correctness of other edited versions.

Edited versions cannot be relied upon as precedent or used for determining how the ATO will apply the law in other cases.

Date of advice: 14 December 2022

Ruling

Subject: Commissioner's discretion - deceased estate

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.

The Commissioner will not exercise his discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time to the two-year period relating to the disposal of the property. The Executors of the deceased estate are not exempt from tax on any capital gain made on the disposal of the property pursuant to section 118-195 of the ITAA 1997.

This ruling applies for the following period:

Year ended 30 June 20xx.

The scheme commences on:

xx November 20xx.

Relevant facts and circumstances

The deceased passed away on xx September 20xx.

The deceased acquired the property after 20 September 1985.

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

The property has never been used to produce assessable income.

The deceased died intestate.

The complexity of the deceased estate delayed the issue of letters of administration.

Covid 19 lockdowns and restrictions were in place in the property's local government area between 31 March and 10 May 2020.

Letters of administration were granted on xx June 20xx.

In August 20xx, you received an offer from a prospective purchaser. This offer was rejected because the beneficiaries were not satisfied with the price.

Covid 19 lockdowns and restrictions were in place in the property's local government area between June 2021 and 10 October 2021.

You entered into a contract to sell the property on xx November 20xx with settlement occurring on xx January 20xx.

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:

•         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 this period in certain circumstances).

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. 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. This discretion may be exercised in situations such as where:

•         the ownership of a 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

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

•         restrictions on real estate activities imposed by a government authority in response to the COVID-19 pandemic

These examples are not exhaustive. They provide guidance on what factors the Commissioner would consider reasonable to exercise his discretion to extend the two-year period.

PCG 2019/5 also outlines factors that would weigh against the Commissioner allowing a longer period. Some factors include inconvenience on the part of the trustee or beneficiary to organise the sale of the dwelling or unexplained periods of inactivity by the executor in attending to the administration of the estate.

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

Application to your situation

In your circumstances, there was a delay in obtaining letters of administration caused by the complexities of the deceased estate. Once letters of administration were issued there was also a period of delay caused by lockdowns and restrictions imposed to combat Covid 19. These are factors that weigh in favour of the Commissioner exercising the discretion to extend the two-year period.

However, there was also a period of approximately 12 months, between the letters of administration being issued and the Covid 19 lockdowns and restrictions commencing in June 20xx. There is insufficient explanation to justify the delay in disposing of the dwelling during this period.

It is also noted that you received an offer for the property in August 20xx. This offer was rejected because the beneficiaries were not satisfied with the price. The asking price is a factor in the control of the administrator.

We have determined that the Commissioner's discretion will not be exercised to extend the two-year period. It is viewed that the facts of this situation are not of a nature that would be acceptable for the exercising of the Commissioner's discretion.

As the Commissioner has not exercised his discretion to extend the two-year period to dispose of the deceased's property, any capital gain or capital loss made on the disposal of the deceased's property cannot be disregarded.