Edited version of private advice

Authorisation Number: 1052222336541

Date of advice: 15 February 2024

Ruling

Subject: CGT - 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 (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 ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

The deceased passed away a few years ago.

The property was the deceased's main residence for the whole of their ownership period.

The property was purchased by the deceased and their spouse a few decades ago.

The property was never used to produce assessable income.

The property remained vacant until it was sold.

Probate was granted a few months after the date of death.

The property was less than 2 hectares in size.

The reasons for the property not being sold within the 2 year time allowed under the legislation is as follows:

In the same month that Probate was granted, the area the Property was located in was impacted by major floods which included the deceased's property.

The property suffered significant damage because of these floods.

The property was inundated with substantial levels of water throughout the entire house.

The flood water resulted in significant damage being done and repair work was carried out before the property could be placed on the market.

No structural work or improvements were made on the property the work was to return the property to its original state so it could be placed on the market.

These floods were recognised as a Natural Disaster by the Australian and NSW Governments

The repairs commenced a few months after the event.

The repairs were carried out on the sunroom, lounge, kitchen, bathroom, laundry and all bedrooms.

Walls, floors and coverings were replaced.

Electrical and plumbing work was done.

All timber walls framing including bottom plates and studwork was required to be clean and sanitise throughout the property.

Removal of asbestos from the property.

Drying and sanitising the property.

Replacement of kitchen, bathroom and laundry.

All external surfaces were professionally cleaned and sanitized including the driveway area, pavements, and garden sheds

All work was completed on the property more than a year after the disaster and the property was placed on the market on the same day.

The repairs took longer than usual due to the extreme shortage of tradesmen (the flood affected many homes and businesses in the area and surrounds). There were also Covid restrictions in place during this time and this impacted the number of tradespeople permitted on the site at one time. A building report was conducted, and this found further works to be done on the property prior to sale that were not fixed properly in the initial repairs - electrical/earthworks, plumbing (building debris was left and built up in the shower drain) and there was no manhole. This was all rectified and the property exchanged near the end of the year. The manhole was established in the same place as the original manhole in the house.

The property was actively managed by a real estate agent from the date it was placed on the market.

Some issues experienced in selling were:

1.            Since the floods happened, they have continually battled with getting properties sold due to the buyers being scared off with the threat of future flooding.

2.            Anyone borrowing from a lender has been hit with the fact they can't get insurance and if they can its at a high yearly rate, as nearly all lenders stipulate that flood cover must be in place to get the loan.

3.            During this time interest rates have increase to a level that has excluded investors from the buyer pool, meaning that unless they are an owner occupier, and that they have sold already.

4.            The work on the property that was carried out under insurance took so long, and they missed the heat of the market.

5.            All repairs were carried out as such that the owner was not allowed to change the configuration of the property, which is something that really needs doing, as its design is all small rooms, and it doesn't maximise the view.

6.            The location next door to a service station centre, didn't help the sale of the property as it turned a lot of people off.

Eventually a cash buyer was found and the sale went through.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195