Edited version of private advice

Authorisation Number: 1052084247818

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: 9 February 2023

Ruling

Subject: Commissioner's discretion - deceased estate

Question

Will the Commissioner exercise his discretion to allow an extension to the two-year period for disposal of the property (the Property)?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Person A (the Deceased) passed away several years ago.

The Deceased owned a property (the Property).

The Deceased acquired the Property as joint tenants with their spouse (Person B) prior to 20 September 1985.

The Deceased acquired Person B's interest in the Property on Person B's death after.19 September 1985

The Property was the Deceased's main residence just before they passed away and was not used to produce assessable income at that time.

The Property was situated on less than two hectares of land.

There are several beneficiaries of the Deceased's estate.

Several of the beneficiaries live in the same state as the Deceased.

The beneficiaries that live in the same state as the Deceased were unable to assist with preparing the Property for sale. This was due to permanent incapacity as a result of medical conditions.

Another of the beneficiaries (Person C) lived in a different state (State B) to where the Property was located. Person C reported the death of the Deceased to the Trustee shortly after the death of the Deceased. At that time, Person C advised the Trustee that they were not ready to commence administration of the Deceased's estate (the Estate).

Person C came out of retirement to work as a healthcare professional following the death of the Deceased.

In 20XX, the border between the relevant states was closed, and only residents of the State A could enter.

Several days later, the state where Person C lives (State B) entered a state-wide lockdown. This required people to stay home except where they had a reasonable excuse to leave.

The following month, the state where the Property was located (State A) shut its border to all states. Only those with a permit were allowed entry.

Several weeks later, residents of State B, where Person C lived, were again allowed to travel within the state.

Several months later, Person C informed the executor that they would like them to commence administration of the Estate.

The following month, the executor accepted administration of the Estate.

Early the following year, State A reopened its border to all states.

Several months later, State A again shut the border to State B.

Several months after this, the lockdown in the city in State B where Person C lived ended.

Shortly after this, State A reopened the border to State B.

Reasons for decision

These reasons for decision accompany the Notice of private ruling

Issue

Question

Summary

Having considered the relevant facts, the Commissioner will not apply the discretion under subsection 118-195 of the ITAA 1997 to allow an extension to the two-year time limit.

Detailed reasoning

A capital gain or loss may be disregarded where a capital gains tax event happens to a dwelling if you owned it as the trustee or beneficiary of the deceased estate.

For an ownership interest in a dwelling acquired by the deceased after 19 September 1985, you will be entitled to a full exemption if the property was the deceased's main residence and not being used to produce assessable income just before their death.

In your case, the deceased acquired a 50% interest in the property prior to 20 September 1985. They acquired the remaining 50% interest in the property after 19 September 1985 on the death of their husband. After the deceased passed away, you owned the property as trustee of the estate. The property was the deceased's main residence until just before they passed away and was not used to produce assessable income at that time.

The property settled more than two years after the deceased's death. You therefore need the Commissioner's discretion to extend the two-year period to be eligible for an exemption.

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 provides guidance on factors we consider when deciding whether to grant the discretion.

Paragraph 3 of PCG 2019/5 provides that we will allow a longer period where the dwelling could not be sold and 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.

Paragraph 14 of PCG 2019/5 explains we weigh up all of the factors (both favourable and adverse). Paragraph 17of PCG 2019/5 provides a list of other factors that may be relevant to the exercise of the Commissioner's discretion which includes the sensitivity of your personal circumstances.

In your case, we considered the following to be favourable factors:

•         one of the beneficiaries contracted COVID and was unwell for several weeks following this

•         one of the beneficiaries was required to care for a sick relative in hospital for several weeks

•         several of the beneficiaries were unable to assist with cleaning out the Property due to permanent incapacity as a result of medical conditions

•         ongoing COVID lockdowns impacted on beneficiary's ability to travel to the Property and clean it out

We also considered the following factors as unfavourable:

•         period of approximately X months from the date of death of the deceased until Person C advised the Trustee to commence administration of the Estate

•         lack of continued action to ensure that the Property was ready to be placed on the market for sale

•         period of almost X years from the death of the deceased before beneficiary first travelled to the property to commence cleaning it out.

For a period of approximately X months following the death of the deceased, no action was taken in relation to the Estate. While acknowledging the impact of COVID restrictions on travel, once lockdowns were lifted, it was incumbent on you to make reasonable efforts to arrange for the Property to be cleaned out and prepared for sale.

In addition, there was a period of several months when it was possible to travel to State A from State B to commence preparing the Property for sale.

While also acknowledging the work one of the beneficiaries was undertaking during COVID, the reasons for delay in disposing of the Property need to be outside the control of the beneficiary. This circumstance was not outside of the beneficiary's control and can therefore not be considered as a favourable factor when considering whether to exercise the discretion.

Having considered the relevant facts, we will not apply the discretion under subsection 118-195(1) of the ITAA 1997 to allow an extension to the two-year time limit. Therefore, the normal capital gains tax (CGT) rules will apply to the disposal of the property. You should note that the first element of your cost base for the property is its market value on the deceased's date of death. The cost of repairs can also be included in the cost base of the property. You are also entitled to the 50% CGT discount in relation to the property.