Edited version of private advice

Authorisation Number: 1052179149823

Date of advice: 12 October 2023

Ruling

Subject: Commissioner's discretion - 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

No

This ruling applies for the following period:

Year ended 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

The deceased passed away on DD MM 20YY.

The deceased owned and lived at the property as their main residence up until the date of their passing.

Probate was granted to the Executor on DD MM 20YY.

The Executor and beneficiaries agreed to allow any of the beneficiaries a right to occupy the property until its eventual sale.

From MM 20YY to MM 20YY, there was limited sales activity in the State due to the Covid-19 pandemic.

A specific lockdown and curfew were imposed in the State during MM 20YY to MM 20YY which resulted in limited sales activity.

Covid-19 restrictions began to decline in MM 20YY to MM 20YY in the State.

The executors organised for the real estate to video for sales advertisement on DD MM 20YY.

The property was listed for auction on DD MM 20YY which received no registered bidder.

The property was listed for a second auction on DD MM 20YY and was sold via private treaty on the same day.

Settlement of the property was reached on DD MM 20YY and was sold by the executor.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Reasons for decision

You may make a capital gain or capital loss if a CGT event happens to a dwelling you owned as the trustee or beneficiary of a deceased estate unless there is an exemption.

For a dwelling acquired by the deceased after 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 after 19 September 1985. 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 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 a full 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 17 of 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 a favourable factor, the restrictions on real estate activities imposed by the State Government in response to the Covid-19 pandemic.

We also considered that probate was granted on DD MM 20YY with no legal impediment to sale of the property. The executors and beneficiaries also made a choice to keep the property as a main residence for any beneficiary wishing to continue to reside in the property.

It is clear that the Commissioner's discretion is meant to be limited to situations where the owner is effectively prevented from selling the property.

Having considered the relevant facts, we will not apply the discretion under subsection 118- 195(1) of the Income Tax Assessments Act 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.