Edited version of private advice

Authorisation Number: 1052180305686

Date of advice: 16 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 XX June 20YY

Year ended XX June 20YY

The scheme commenced on:

XX July 20YY

Relevant facts and circumstances

The deceased acquired the dwelling in 19YY.

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

The property was not used to produce assessable income prior to the deceased's death nor after during the beneficiary's ownership period.

The deceased was moved into a care facility on XX XXXX 20YY.

The deceased passed away on XX XXXX 20YY.

The executors are choosing to continue to treat the property as the deceased's main residence until they passed away.

Person 1 was occupying the property as their home prior to the passing of the deceased and continued to be their residence after.

The deceased's will named Person 1 and Person 2 as joint executors of the estate (the estate).

The joint executors were also the beneficiaries of the estate.

The property sale was delayed as the executors could not find alternative accommodation for Person 1 because of the impact of the Covid-19 Pandemic.

The property sale was delayed as the deceased's personal effects and belongings needed to be removed from the property.

A contract for sale of the property was signed on XX XXXX 20YY.

The property was sold by the beneficiaries on the settlement date of XX XXXX 20YY.

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 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 before 20 September 1985. After the deceased passed away, you owned the property as beneficiaries 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 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 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 a favourable factor is that real estate activities in the relevant State were restricted during certain periods by the Government in response to Covid-19 and that the deceased's personal effects and belongings needed to be removed from the property. However, it is also considered that real estate activities such as open homes and auctions were allowed during the States restrictions as of XX XXXX 20YY.

We also considered the property was not listed for sale due to a beneficiary living in the property and that they were unable to find alternative accommodation due to Covid-19. This delay is attributable to inconvenience on the behalf of the beneficiary to find alternative accommodation.

It is clear that the Commissioner's discretion is meant to be limited to situations where you are effectively prevented from the selling the property. It is considered that the property was not sold due to the inconvenience on the part of the beneficiary to organise the sale of the dwelling.

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.