Edited version of private advice

Authorisation Number: 1052257321585

Date of advice: 30 May 2024

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 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 ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The deceased passed away on XX/XX/20XX.

The deceased owned a property (the property) that was acquired 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 the time of death.

Prior to the deceased's death, solicitors were appointed.

Person A and Person B were appointed as executors.

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

In XX/20XX, Person A was appointed as the personal representative of the estate.

Probate was granted on XX/XX/20XX

In XX/20XX, real estate agents were engaged to sell the property. In the months that followed, X contacts were signed, however they were not executed.

Person A had dementia and Person A's spouse held power of attorney.

In XX/20XX, new solicitors were appointed.

On XX/XX/20XX, Person A passed away.

Following Person A's passing, a change of titles was required.

The transition to the new solicitors took several months as documentation transfers and legal handovers were required.

On XX/XX/20XX, the property was relisted for sale after an independent valuation was obtained.

In XX/20XX, an offer was received for the property, however this offer was terminated by the buyer in XX/20XX. In XX/20XX, an additional offer was received and agreed upon, however this offer was also terminated by the buyer, shortly after the contract was signed.

The property remained vacant after the deceased passed away.

A final contract was entered into to sell the property on XX/XX/20XX, with settlement occurring on the same date.

Relevant legislative provisions

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

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 17of 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 considered that one of the executors did not have the capacity to administer the estate due to their dementia diagnosis and later passed away. However, two executors were appointed to administer the estate. We also considered that a change of solicitors occurred, and that documentation needed to be provided by the previous solicitors to the new solicitors.

We have determined that insufficient activity occurred to dispose of the property from the time that Probate was granted on XX/XX/20XX until XX/20XX. During this time, the property was listed for sale with real estate agents and new solicitors were appointed.

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. The cost of repairs can also be included in the cost base of the property. You are also entitled to the 50% CGT discount in relation to the property.