Edited version of private advice

Authorisation Number: 1052072330346

Date of advice: 19 December 2022

Ruling

Subject: CGT - deceased estate

Question

Will the Commissioner allow the Taxpayer additional time to dispose of property held by the Estate and still disregard the capital gain made as allowed under section 118-195 of the Income Tax Assessment Act 1997?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20YY

The scheme commences on:

DD MM 20YY

Relevant facts and circumstances

The Estate arose on the passing of the Deceased on Date of death.

At the Date of death, the Deceased held their principal place of residence (the Property) which devolved to the Estate.

The Deceased purchased the Property prior to 20 September 1985.

The Property remained vacant throughout the entire period from the passing of the Deceased to its sale.

The Executors worked together towards preparation and disposal of the Property.

After the passing of the Deceased, the process of applying for Probate in late 20YY was delayed because of the difficulties of locating the original version of the will of the Deceased and dissatisfaction with the performance of the initial lawyers.

Alternative lawyers were appointed in 20YY to commence the process of applying for Probate.

Due to the global COVID-19 pandemic the Government ordered the first of a series of "lockdowns".

Probate was ultimately granted date in 20YY.

The process of then transferring the property into the name of the Estate was significantly delayed. The multiple lockdowns ordered by the Government resulted in a continual unavailability of legal staff and difficulty with physically moving documents around for preparation and signing. The Property was transferred into the name of the Estate on a date in 20YY, thereby allowing the sale process to commence.

There were numerous extended periods of lockdown. During this time, residents were very restricted in their travel (amongst many other restrictions) making it impossible to attend to the Property.

The disruption to daily life and to business caused by the COVID-19 pandemic was the key causal factor of delay to the sale of the property.

There were no significant delays caused by inactivity on the part of the Executors.

The property sale process was also significantly impacted by the pandemic including the engagement of agents, the preparation of sale contracts and vendor statements, the production of campaign brochure/sale boards/website/video, etc. all took much longer than normal to complete.

The property was originally scheduled for auction on mid-20YY with a first inspection date a month prior. This was designed to ensure the timely sale of the property. However, the first inspection had to be cancelled due to further lockdowns and the auction date was deferred for X weeks and further deferred for X months, also due to lockdown restrictions.

The property was ultimately sold on that date. An early settlement date was negotiated with the purchaser.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Reasons for decision

All references made in these reasons for decision are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise stated.

Summary

The Commissioner will allow additional time to dispose of property held by the Estate and still disregard the capital gain made as allowed under section 118-195.

Detailed reasoning

As is relevant, subsection 118-195(1) provides that if you own a dwelling in your capacity as trustee of a deceased estate, a capital gain made on the disposal of the dwelling will be disregarded if:

• the deceased acquired the ownership interest before 20 September 1985, and
• your ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner.

The Deceased acquired the Property prior to 20 September 1985, however the Trustee's ownership interest ended more than two years after the death of the Deceased.

Generally, a longer period may be allowed where the dwelling could not be sold and settled within two years of the deceased's death due to reasons beyond the control of the beneficiary or the trustee of the deceased estate that existed for a significant portion of the first two years.

Practical Compliance Guideline PCG 2019/5 (PCG 2019/5) outlines the factors the Commissioner will consider when deciding whether to exercise the discretion to extend the two-year period.

Factors that would weigh in favour of us allowing a longer period include those listed in paragraph 12 of PCG 2019/5. The absence of some or all those favourable factors does not necessarily preclude us from allowing a longer period.

Factors that would weigh against us allowing a longer period include those listed in paragraph 13 of PCG 2019/5.

One of the circumstances in paragraph 12 of PCG 2019/5 is the effect of 'restrictions on real estate activities imposed by a government authority in response to the COVID-19 pandemic'.

The main reason for the delay in disposing of the dwelling was the impact of the multiple lockdowns imposed by the Government in response to the COVID-19 pandemic. Those lockdowns lead to delays in preparing the property for sale and to delays in the auction itself.

It is also noted that none of the factors listed in paragraph 13 of PCG 2019/5 led to the delays.

Therefore, the Commissioner will allow an extension to the 2-year period until the settlement on the disposal of the dwelling occurred. Any capital gain made on the disposal of the dwelling can be disregarded.