Edited version of private advice

Authorisation Number: 1052181820824

Date of advice: 03 November 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 20xx.

The scheme commences on

1 July 20xx.

Relevant facts

The deceased acquired the dwelling prior to 20 September 1985.

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

The deceased passed away on xx xx 20xx.

The deceased had prior to their passing rented out the property after they moved into a nursing home.

The property continued to be rented out after the deceased's death until just before the settlement date.

The sole executor of the deceased's estate is the deceased's adult child (you).

The beneficiaries named in the deceased's will included your adult children and yourself.

Probate of the will was granted to you two months after the passing of the deceased.

You and your adult children had substantial caring responsibilities and health and other personal issues.

You sold the property approximately four years after the deceased's death.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Reasons for decision

A capital gain or capital loss may be disregarded under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) where a capital gains tax event happens to a dwelling if it passed to you as a beneficiary of a deceased estate or you owned it as the trustee of the deceased estate. Generally, your ownership interest in the dwelling has to end within two years of the deceased's death for the exemption to apply.

Subsection 118-195(1) of the ITAA 1997 confers on the Commissioner the discretion to extend the two-year period in certain circumstances. Examples of these circumstances and the factors that the Commissioner will consider in exercising the discretion are outlined in Practical Compliance Guideline 2019/5 The Commissioner's discretion to extend the two-year period to dispose of dwellings acquired from a deceased estate (PCG 2019/5).

PCG 2019/5 states that generally the Commissioner will allow an extension where it was not possible for the property to be sold and settled with the two-year period because of circumstances beyond your control such as the will being challenged or a life tenancy provided in the will.

It also states that a factor that may be relevant to the exercise of the discretion is the sensitivity of your personal circumstances and of other surviving relatives of the deceased. These circumstances are relevant if they prevented the sale of the property.

You contend that the delay in disposing of the property in your case was due to your sensitive personal circumstances and those of your family.

We acknowledge these circumstances. However, nothing in the information provided suggests that once probate was granted two months after the deceased's passing, anything more was required to enable the property to be sold other than to: request the estate's solicitor to arrange for the title to the property to be transferred to you; give notice to the tenant to vacate the property; and appoint a real estate agent to arrange the sale. These are straightforward tasks that would not have required substantial time from you. Therefore, although you and your family had caring responsibilities and significant health and other personal issues, we cannot see that they prevented you for a period of approximately four years from being able to sell the property.

Your private ruling application also referred to certain personal circumstances of your tax agent. However, we do not see how your tax agent's circumstances would have prevented you from being able to sell the property.

It is also noted that the property was used for income producing purposes for the entire period of four years from the deceased's death until just before settlement. PCG 2019/5 indicates that this would be an unfavourable factor when considering the exercise of the discretion.

Having regard to all of the above, we will not apply the discretion under subsection 118-195(1) of the ITAA 1997 to allow an extension to the two-year time limit.