Edited version of private advice

Authorisation Number: 1052252385774

Date of advice: 16 May 2024

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 dwelling and disregard the capital gain or capital loss you made on the disposal?

Answer

No.

This ruling applies for the following periods:

XX June 20XX

The scheme commenced on:

XX July 20XX

Relevant facts and circumstances

The deceased passed away on XX XXX 20XX.

The deceased passed away intestate.

The dwelling is located at XXX (the property).

The deceased acquired the property after 20 September 1985.

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 or any time after their death.

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

On XX XXX 20XX, Letters of Administration were granted.

In XXX 20XX, the deceased's relative who lived overseas advised of their intention to acquire the property. The relative had viewed images of the property which the executor had sent them via the internet, however the relative had not previously viewed the property in person.

The relative intended to view the property in person, however experienced difficulties travelling to Australia due to Covid-19 travel restrictions. The cost of travelling to Australia as well as limited flights and quarantine requirements deterred them from travelling to Australia.

On XX XXX 20XX, the relative made the decision to travel to Australia to view the property.

In XXX 20XX, the relative arrived in Australia and experienced a month's delay in waiting for banks to approve a loan. the relative decided not to proceed with purchasing the property.

Following the relative's decision to not purchase the property, the administrator engaged the services of a local agent to sell the property. In XXX 20XX, the property was advertised for sale, however, took approximately seven months to sell. You contend that this was due to the remote location of the property and the presence of Covid-19.

The administrator did not consider selling the property when Covid-19 restrictions prevented the relative from visiting Australia as they wanted to give them every opportunity to purchase the property.

On XX XXX 20XX, certificates were obtained by the solicitor.

The property was vacant from the date that the deceased passed away until it was sold.

A contract was entered into to sell the property to the purchaser on XX XXX 20XX and by the administrator on XX XXX 20XX with settlement occurring on XX XXX 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 118-195(1)

Does IVA apply to this private ruling?

No

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 after 19 September 1985. After the deceased passed away, you owned the property as trustee 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 as favourable factors, that the property was used as the deceased's main residence and was not used for income producing purposes.

We also considered that the disposal of the property was not a result of factors outside of the administrator's control but as a result of their actions and choices to delay the sale of the property.

Although Covid-19 travel restrictions, limited flights, quarantine, and vaccination requirements impacted the deceased's relative from travelling to Australia, the relative could have purchased the property online, as property sales were still occurring online during that time. In addition, as Covid-19 restrictions had been lifted, the property could have been viewed sooner by the deceased's relative.

We considered that there was a delay in the deceased's relative obtaining a bank loan when they arrived in Australia and that they decided against purchasing the property. A change of mind would not be considered a valid reason for the Commissioner to exercise the discretion.

We also considered that the property was situated in a regional location and took several months to sell. The administrator could have made the decision to place the property on the market much earlier instead of waiting until the deceased's relative decided not to purchase the property.

In addition, there is no information to indicate there has been a challenge to the will, the estate was of a complex nature, and that there were unforeseen or serious personal circumstances preventing the sale of the property.

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.