Edited version of private advice

Authorisation Number: 1052181215585

Date of advice: 17 October 2023

Ruling

Subject: Commissioner discretion - deceased estate

Question

Will the Commissioner exercise the discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time to dispose of the ownership interest in the property and disregard the capital gain 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 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The deceased passed away several years ago.

The property was the deceased's main residence.

The property was purchased by the deceased a number of years ago.

The property was the deceased's main residence just before they died.

The property was never used to produce income.

The property remained vacant from the date of death to the time it was sold.

The property was less than 2 hectares.

The deceased was survived by their children.

Probate of the will was granted to the children shortly after the date of death.

There were circumstances which delayed the sale of the property.

The children signed a deed of family arrangement.

After the deed was signed, it was discovered that one of the children had been a bankrupt and the Official Trustee in Bankruptcy (the trustee) had, since that time, been the trustee of their bankrupt estate.

A trustee was appointed as trustee of their bankrupt estate pursuant to s 181A of the Bankruptcy Act 1966 (Cth) ("the Act").

By reason of their bankruptcy, any inheritance under the will was after-acquired property and vested in the trustee pursuant to s 58(1)(b) of the Act.

The trustee asserted that the deed is liable to be set aside due to the bankrupt individual being an undischarged bankrupt at the time. This was disputed by their sibling.

Eventually the children sold the property. Settlement took place a few months later and the sale proceeds were paid to a solicitor at the direction of the children pursuant to the deed.

At the request of the trustee, the proceeds were subsequently transferred to the trustee's solicitors as after-acquired property of the bankrupt estate pursuant to s 58(1)(b) of the Act.

Several months later, the Federal Circuit Court of Australia made orders that the trustee pay a certain amount to the bankrupt individual's former spouse to resolve Family Court proceedings brought by the spouse, pursuant to orders made.

The children and the trustee in bankruptcy renegotiated a further deed ("the further deed") which was never signed.

As a result of the bankrupt individual not signing the further deed, their sibling made an application to the relevant Supreme Court for the bankrupt individual to be removal as executor. The court made orders removing the children as executors and appointing a third party as independent administrator of the estate ("the administrator").

Negotiations continued between a sibling, the trustee and the administrator. A deed of family arrangement was subsequently signed. ("the deed of family arrangements").

Following the signing of the deed of family arrangements, the administrator made arrangements to sell another property.

The other property was difficult to sell and a contract of sale was only signed several months later, with settlement taking place a few months later.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195