Edited version of private advice

Authorisation Number: 1052183240399

Date of advice: 20 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 (ITAA 1997) to allow an extension of time for you to dispose of your ownership interest in the property and disregard the capital gain or capital loss you made on the disposal?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The deceased passed away on DD MM 20YY.

The dwelling is located at XXXX (the property).

The deceased acquired the property before 20 September 19XX.

The property was the main residence of the deceased just before they passed away and was not used to produce assessable income at that time.

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

Letters of administration were granted in MM 20YY, authorising the administrator to administer the estate as the deceased had passed away without a will.

The property was placed on the market for sale in MM 20YY.

Due to the remote location of the property and the unusual nature of the dwelling, there was very minimal interest from buyers.

Between the time the property was placed on the market and the time it sold, the administrator engaged the services of another real estate agency.

The property only had one official offer, which was received in MM 20YY. The administrator accepted this offer.

The contract date was DD MM 20YY, with settlement occurring on DD MM 20YY.

The property was left vacant between the date the deceased passed away and the date it was sold.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Reasons for decision

Summary

Having considered your circumstances and the relevant factors the Commissioner will not exercise the discretion under section 118-195 of ITAA 1997 to allow an extension of time for you to dispose of your ownership interest in the property and disregard the capital gain or capital loss you made on the disposal.

Detailed reasoning

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 before 19 September 19XX, 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 19 September 19XX. After the deceased passed away, you owned the property as trustee of the estate.

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.

In your case, we consider as favourable factors:

•         The deceased passed away with no will, requiring the appointment of XXXX to administer the estate (which can cause delays in the disposal of the property).

•         The property was in a remote location.

We also considered actions taken to attempt to make the property more desirable to the real estate market. In this instance, the services of an alternate real estate agency were engaged at some point between the property being listed for sale and the eventual sale. No other alternative attempts have been made.

While we understand the remote location and unusual nature of the property did not make it overtly desirable to the real estate market, there is no clear evidence that any active or alternative attempts to make the property more desirable were utilised, such as periodically reducing the asking price until a buyer could be found. Also, the delay of XX years over the two-year period is very substantial.

Having considered the relevant facts, 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. 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. You are also entitled to the 50% CGT discount in relation to the property.