Edited version of private advice

Authorisation Number: 1052127240037

Date of advice: 7 June 2023

Ruling

Subject: Commissioner's discretion - deceased estate

Question

Will the Commissioner exercise the discretion under section 118-195 to allow an extension of time for you to dispose of your ownership interest in the property and disregard the capital gain or capital loss you made on the disposal?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 2020

Relevant facts and circumstances

The Deceased acquired the Property prior to September 19XX.

The Deceased passed away in August 20XX.

The Property was the main residence of the Deceased throughout their ownership period.

The Deceased appointed XXXXX (the Executor) as the Executor of her Will.

Probate was granted to the Executor in February 20XX.

The Executor resided in the Property as his main residence until it was sold.

The Will gave the Trustee the power to postpone the sale of any part of the Estate. The power to continue any part of the Estate in the state which it was at the time of their mother's death. The power to deal with any part of the Estate in any manner that he might consider proper as if he were the beneficial owner of that property.

The Property was listed for sale in January 20XX.

The Executor entered a contract for sale of the Property in July 20XX.

Settlement occurred in September 20XX.

Relevant legislative provisions

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

Reasons for decision

A capital gain or capital 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 a dwelling acquired by the deceased prior 19 September 1985, that was the deceased's main residence and not used to produce assessable income just before their death, you will be entitled to a full exemption if your ownership interest ends within two years of the deceased's death. Your ownership interest ends at the time of settlement of the contract of sale.

In your case, the deceased acquired the property prior to 19 September 1985. After the deceased passed away, you owned the property with your sister as beneficiaries. 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 sale settled more than two years after the deceased's death. Therefore, you require 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 consider as favourable factors, that the property was used as the deceased's main residence and was not used for income producing purposes.

We also considered that the will gave your brother various powers of administration. There were no provisions in the deceased's will to suggest that your brother was permitted to remain in the property after the deceased passed away.

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.