Edited version of private advice

Authorisation Number: 1052169227092

Date of advice: 18 September 2023

Ruling

Subject: CGT - deceased estate

Question

Will the Commissioner exercise the discretion under section 118-195 of the Income Tax Assessment Act 1997 to allow an extension of time for you to dispose of your ownership interest in the dwelling and disregard the capital gain or capital loss you made on the disposal?

Answer

Yes.

Having considered your circumstances and the relevant factors the Commissioner will allow an extension of time. Further information about the Commissioner's discretion can be found by searching ato.gov.au for 'QC 66057'

This ruling applies for the following period:

Year ended 30 June 2022

The scheme commenced on:

1 July 2021

Relevant facts and circumstances

The deceased passed away several years ago.

The deceased lived with their spouse at the estate property (the property) which was their main residence just before they passed away, and it was not then used to produce assessable income.

The deceased's spouse remained in the property until their death which was less than two years after the deceased passed away.

Probate was granted just over a year after the deceased's spouse passed away to the deceased's child (executor 1) and the deceased's other child (executor 2).

The main cause of the delay was due to disputes between the executors - firstly over a claim by executor 2 for funds from the estate due to their own personal reasons. Negotiations were required between the respective parties and their solicitors as to the quantum if any of the funds involved.

Another dispute was with the manner of the administration of the estate and in particular how the property was to be dealt with.

A further detailed timeline regarding the delay in selling the estate property is listed below:

The delay from the deceased's spouse passed away until Probate was granted was partly caused by a dispute between the executors (more on this below) but also partly for cultural reasons as there was a 12-month mourning period following the deceased's spouse's death.

After the death of the deceased's spouse, there was a typical mourning period of 1 year and executor 2 did request that the property be available for the one- year memorial service, and executor 1 agreed. There were some discussions as to what to do with the property of the estate, however executor 2 was not interested in coming to any final agreement until after the 1- year memorial service.

Before the death of the deceased's spouse and during this time the relationship between executor 1 and executor 2 was very poor with minimal contact between the two.

After the one-year memorial both executor 1 and executor 2 went to the office of a solicitor (solicitor 1), who was the lawyer acting for the estate. There were several meetings at the office of solicitor 1 in which the matter of who would get to keep the property was discussed, along with the funds that executor 1 had demanded.

Several attempts were made to get both executor 1 and executor 2 to come to some sort of agreement, however it was extremely difficult as the relationship between the two had completely broken down and both parties could not agree on the division of the property.

Regarding the period between the Grant of Probate up until when solicitor 2 was appointed to act for executor 2 (a couple of years after probate was granted), solicitor 1 informed both executors that they could no longer act for the estate as both the executors were in dispute and could not come to an agreement as to what to do with the property.

As communication between executor 1 and executor 2 at this point had completely ceased, some third parties were involved in order to get the dispute resolved. This involved several people known to them, however these attempts were also not successful.

Solicitor 2 then issued a letter shortly after they were appointed to act for executor 2 whereupon the solicitors communication commenced, as executor 1 and executor 2 had completely fallen out by this time, and they would only communicate via intermediaries.

Time records have been provided from solicitor 3 (who were appointed to act for executor 1). These records show regular communications between solicitor 3, their client (executor 1), and solicitor 2 up until when the property was eventually sold in late 2021.

The property was also vandalised in between when the new solicitors were appointed and when the property was eventually sold. However, approval to complete these repairs required agreement from both of the executors.

Regarding the two-year prior to the property being sold, a real estate agent was appointed at the request of both of the executors. Unfortunately, the house was still completely full of the deceased spouse's possessions and work was needed to get the house up to an acceptable standard for sale after the property had been broken into and vandalised several times prior to the real estate agent being appointed. The property was in an extremely poor condition and needed significant work to repair the damage.

In order to get the property works underway, the real estate agent was given instructions to guide both executor 1 and executor 2 as to what work was necessary and to organise the works, but only with their consent. There were disputes between executor 1 and executor 2 as to how to divide the remaining property in the house and the real estate agent had to liaise between executor 1 and executor 2 to determine how to divide the remaining property and to get authorisation for the necessary works on the property.

During this period some work was carried out on the house to empty some contents, repair the gardens, and commence repairs, however the progress was slow as the COVID 19 pandemic caused significant delays as well as the difficult and time- consuming process of authorising the work on the property that the real estate agent had to go through.

At some point in the lead up to the property being sold, executor 2 was very difficult to contact for a period of several months. This caused a significant delay of several months as the real estate agent could not get authorisation to remove any items of property and authorise work without executor 2's consent. However, the real estate agent did make contact with executor 2 after a while and the process of getting the house ready for sale re-commenced.

The disputes partly resolved in late 2021.

The property was sold in late 2021.

Settlement took place in early 2022.

Relevant legislative provisions

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