Edited version of private advice

Authorisation Number: 1052269116067

Date of advice: 2 July 2024

Ruling

Subject: Commissioner discretion - extension of time

Question:

Will the Commissioner exercise the discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 ('ITAA 1997') to allow an extension to the 2-year limit to DD MM YYYY for the Capital Gains Tax ('CGT') exemption on the sale of the inherited dwelling that was the main residence of the deceased?

Answer:

Yes.

This ruling applies for the following period

DD MM YYYY to DD MM YYYY

RELEVANT FACTS AND CIRCUMSTANCES

Background information

The Deceased purchased a unit located at XYZ ('the Property') in MM YYYY for $xyz.

The Property was the Deceased's principal place of residence until the time of their death on DD MM YYYY.

The Property was never used for the purpose of producing assessable income.

The Deceased executed their Will on DD MM YYYY. The Deceased's Will named the Applicant of XYZ as the Executrix of their Will and sole beneficiary of their estate. The Applicant was the Deceased's life partner for approximately xx years, although they maintained separate residences.

Probate of the Will was granted by the Supreme Court of State A on DD MM YYYY to the Applicant.

Following their death, the Deceased's Will was contested in MM YYYY by their relative, based on the Deceased's testamentary capacity to make their last Will. The relative, who resided overseas, also claimed that inadequate provisions were made for their maintenance from the Deceased's Will. The relative lodged an application in the Supreme Court of State A on DD MM YYYY.

A prolonged hearing was held in the Supreme Court of State A (due to one party residing overseas, and documents requiring to be translated) throughout YYYY and early YYYY. Minutes of Consent were signed by the Court on DD MM YYYY. Court documents have been provided to substantiate these events.

The death of the Deceased and the protracted legal battle took a toll on the Applicant's health, which precluded them from dealing with the sale of the inherited Property. The Applicant is xx years of age.

Soon after settling the extended legal dispute over the Deceased's estate, the Applicant developed significant health problems and a number of emergency interventions.

Between MM YYYY and MM YYYY, the Applicant has undergone a number of hospital admissions, due to serious health issues. During this period, the Applicant was unable to deal with the sale of the inherited Property. Medical records and health insurance claims have been provided to substantiate these events.

In MM YYYY, the Applicant is gaining some stability in their health, and they are now in a position to deal with the legacy matters of the Deceased's estate. The Applicant is now in the process of sorting through the contents of the Property and will then prepare it for sale through XYZ Real Estate.

Information provided

You have provided a number of documents containing detailed information in relation to the Applicant's private ruling application, including:

•         Private Binding Ruling ('PBR') Application, dated DD MM YYYY

•         response to further questions provided DD MM YYYY

We have referred to the relevant information within these documents in applying the relevant tests to your circumstances.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 118-130(3)

Income Tax Assessment Act 1997 section 118-195

REASONS FOR DECISION

All legislative references are to the Income Tax Assessment Act 1997 ('ITAA 1997') unless otherwise stated.

SUMMARY

The Commissioner will exercise the discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 to allow an extension to the 2-year limit to 30 June 20YY for the Capital Gains Tax ('CGT') exemption on the sale of the inherited dwelling that was the main residence of the Deceased.

DETAILED REASONING

Subsection 118-195(1) of the ITAA 1997 outlines the following with regard to a dwelling acquired from a deceased estate:

(1)          A capital gain or capital loss you make from a CGT event that happens in relation to a dwelling or your ownership interest in it is disregarded if:

(a)          you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and

(b)          at least one of the items in column 2 and at least one of the items in column 3 of the table below are satisfied; and

(c)          the deceased was not an excluded foreign resident just before the deceased's death.

Table 1: Table for acquiring interest in deceased estate

Subsection 118-130(1) of the ITAA 1997 defines ownership interest in a dwelling as having a legal interest of the dwelling until it ends on settlement of the property.

Subsection 118-130(3) of the ITAA 1997 provides that where the sale or other disposal of the dwelling proceeds under a contract, the ownership interest ends at the time of settlement of the contract of sale and not at the time of entering the contract, as follows:

(3) For land or a dwelling where you have a contract for the happening of the *CGT event, you have an ownership interest in it until your legal ownership of it ends.

Paragraph 1 of Practical Compliance Guideline PCG 2019/5 - Capital gains tax and deceased estates - the Commissioner's discretion to extend the two year period to dispose of dwellings acquired from a deceased estate, states that section 118-195 ITAA 1997 disregards capital gains and capital losses made from certain CGT events that happen in relation to a dwelling that was a deceased person's main residence and not being used to produce assessable income just before they died, or was acquired by the deceased before 20 September 1985.

Paragraph 2 of PCG 2019/5 states that if you disposeof an ownership interest in a dwelling that passed to you as an individual beneficiary or as the trustee of the deceased's estate within two years of the deceased's death, any capital gain or loss you make on the disposal is disregarded. The Commissioner has the discretion to extend the two year period.

Paragraph 3 of PCG 2019/5 states that, generally, 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 12 of PCG 2019/5 outlines the circumstances that take more than 12 months to resolve, which will be considered by the Commissioner:

•         the ownership of the dwelling, or the will, is challenged

•         a life or other equitable interest given in the will delays the disposal of the dwelling

•         the complexity of the deceased estate delays the completion of administration of the estate, or

•         settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of your control.

Paragraph 15 states that factors that would weigh in favour of the Commissioner allowing a longer period include those listed in paragraph 12 of PCG 2019/5 above. The absence of some or all of those favourable factors does not necessarily preclude us from allowing a longer period.

APPLICATION TO YOUR CIRCUMSTANCES

Considering the provisions of subsection 118-195(1) of the ITAA 1997, a capital gain or capital loss you make from a CGT event that happens in relation to a dwelling or your ownership interest in it is disregarded if:

a)            you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and

b)            at least one of the items in column 2 and at least one of the items in column 3 of the table (see previous section) are satisfied; and

c)            the deceased was not an excluded foreign resident just before the deceased's death.

In this matter, the Deceased acquired the property in MM YYYY. As per Item 1 in Column 2 as set out in subsection 118-195(1) of the ITAA 1997, the Deceased acquired the ownership interest after 20 September 1985 and the dwelling was the Deceased's main residence just before the Deceased's death and was not then being used for the purpose of producing assessable income.

The Deceased passed away on DD MM YYYY.

Following the Deceased's death, the will was contested by their relative, based on the Deceased's testamentary capacity to make their last Will.

Following prolonged Supreme Court proceedings lasting many months, litigation was finalised in MM YYYY. Soon after settling the extended legal dispute over the Deceased's estate, the Applicant developed significant health problems and a number of emergency interventions.

Between MM YYYY and MM YYYY, the Applicant has undergone a number of hospital admissions, due to serious health issues. During this period, the Applicant was unable to deal with the sale of the inherited Property.

As per Item 1 in Column 3 as set out in subsection 118-195(1) of the ITAA 1997, the Applicant's ownership interest in the Property ends within 2 years of the Deceased's death, or within a longer period allowed by the Commissioner.

Having considered all the relevant facts and the protracted Supreme Court proceedings, the Commissioner will apply the discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the 2-year time limit until DD MM YYYY. This will allow the Applicant sufficient time to sell the Property.

CONCLUSION

The Commissioner will exercise the discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 to allow an extension to the 2-year limit to DD MM YYYY for the Capital Gains Tax ('CGT') exemption on the sale of the inherited dwelling that was the main residence of the deceased.

ATO view documents

Practical Compliance Guideline PCG 2019/5 - Capital gains tax and deceased estates - the Commissioner's discretion to extend the two year period to dispose of dwellings acquired from a deceased estate.

Key words

Capital Gains Tax (CGT)

Deceased Estate

Ownership Interest