Edited version of private advice

Authorisation Number: 1052128036700

Date of advice: 13 June 2023

Ruling

Subject: Commissioner's discretion - extension of time - deceased estate

Question

Will the Commissioner exercise the discretion under subsection 118-195(1) of Income Tax Assessment Act 1997 (ITAA 1997) 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

Yes

This ruling applies for the following period(s)

1 July 202X to 30 June 202X

The scheme commences on

1 July 202X

Relevant facts and circumstances

Your parent passed away

Your parent was an Australian resident at the time of death.

At the time of their passing your parent had an ownership interest in a property.

The Property had been your parent residence and it had not been used to produce assessable income during the period that they had an ownership interest in it.

No one lived in the house following your parent's passing. Nor was the house rented out.

Probate on your parent's estate was granted on X date.

You and your siblings each inherited an ownership interest in the Property, as beneficiaries of your parent's deceased estate.

Following your parent's passing, you agreed with your siblings to commence sorting the house contents, with a view to sell the Property.

The sorting of the contents was interrupted by the COVID-19 pandemic with resulting restrictions and shutdowns.

While acknowledging the delay in disposing of the Property was longer than 2 years after your parent's death, your family worked diligently towards the clearance of the house, and disposal of, the Property.

Your family did not delay waiting for the price to pick up, nor was the Property being refurbished. Your family's aim was to clear the Property of your parent's belongings and make the house acceptable to purchasers. Your family took guidance from real estate agents and spent their own funds to achieve this.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

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

Reasons for decision

All legislative references are to the Income Tax Assessment Act 1997 unless otherwise stated

Summary

The Commissioner will exercise the discretion under subsection 118-195(1) 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.

Detailed reasoning

Under subsection 118-195(1) a capital gain or loss you make from a CGT event that happens in relation to a dwelling or your ownership interest in it is disregarded if:

    (i)        you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate, and

   (ii)        at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied (paragraph 118-195(1)(b)); and

  (iii)        the deceased was not an excluded foreign resident just before their death.

Item 1 of the table in paragraph 118-195(1)(b) disregards capital gains and capital losses from a CGT event that happens in relation to a dwelling that:

•         was acquired on or after 20 September 1985

•         a deceased person's main residence, and

•         was not being used to produced assessable income just before they died.

If you are an individual, the interest passed to you as a beneficiary of a deceased estate and you dispose of your ownership interest in the dwelling within 2 years of the deceased's death, or within a longer period allowed by the Commissioner.

Practical compliance Guidelines PCG 2019/5 the Commissioners discretion to extend the two-year period to dispose of the dwellings acquired from a deceased estate provides guidance on factors we consider when deciding whether to grant the discretion.

The factors the Commissioner will consider to be favourable are listed in paragraph 12 of PCG 2019/5 as follows:

•         the ownership of the 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 the deceased estate delays the completion of the administration of the estate

•         settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of your control, or

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

You were also restricted in your movements due to COVID-19 lockdowns as you do not live in the same locale as your parent's house.

You had the house ready for sale in early 20XX.

The factors the Commissioner will consider to be unfavourable are listed in paragraph 13 of PCG 2019/5 as follows:

•         waiting for the property market to pick up before selling the dwelling

•         waiting for refurbishment of the dwelling to improve the sale price

•         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.

You advised that you and your siblings did not wait for the property market to pick up. You each have your own residence. The house was not refurbished and was sold in its original state.

Conclusion

We consider that the factors which were attributable to the delay in the disposal of the Property were outside of your control.

Having considered the relevant facts, the Commissioner will exercise the discretion under subsection 118-195(1) to allow an extension of the two-year limit. Therefore, you can disregard the capital gains or loss you make from the disposal of your ownership interest in the Property that you acquired as a beneficiary of your parent's deceased estate.