Edited version of private advice

Authorisation Number: 1052295594439

Date of advice: 30 August 2024

Ruling

Subject: Commissioner's discretion - deceased estate

Question 1

Will the Commissioner exercise the discretion to allow an extension of time for you to dispose of your ownership interest in Property A and disregard the capital gain or capital loss you made on the disposal of the dwelling and up to 2 hectares of adjacent land?

Answer

Yes.

Having considered your circumstances and the relevant factors the Commissioner will allow an extension of time. However, the extension only extends to the dwelling and the land to the extent that the land was used primarily for private and domestic purposes in association with the dwelling, up to a maximum area of 2 hectares.

As such, you can apply the main residence exemption to whichever area of land you choose in addition to the land on which your dwelling is situated. However, subsection 118-120(3) of the ITAA 1997 specifies that the total of the land (including the land on which the dwelling is situated) must not exceed 2 hectares.

Question 2

Will the Commissioner exercise the discretion to allow an extension of time for you to dispose of your ownership interest in Property B and disregard the capital gain or capital loss you made on the disposal?

Answer

No.

Vacant land is not eligible for the main residence exemption. There needs to be a dwelling on the land that you made your main residence. Section 118-115 of the ITAA 1997 defines a dwelling to include a unit of accommodation that is a building, or is contained in a building, and consists wholly or mainly of residential accommodation, a unit of accommodation that is a caravan, houseboat or other mobile home, and any land immediately under the unit of accommodation.

As Property B does not include a dwelling you are not eligible for the main residence exemption under section 118-195 of the ITAA 1997.

This ruling applies for the following period:

Year ended DD/MM/20YY

The scheme commenced on:

DD/MM/20YY

Relevant facts and circumstances

On DD/MM/20YY, the deceased passed away leaving a will. The will appointed their spouse as executor and trustee, but as the spouse pre-deceased the deceased, it appointed Child A and Child B as joint executors and trustees.

The deceased owned 3 properties, Properties A, B and C with farmland spread across the 3 properties.

The deceased acquired Properties A and B at some time before 1985, and as at date of death was not residing in either of these properties.

Property A contains 1 residential property and Property B is vacant farmland.

On DD/MM/20YY, Lawyer A advised Solicitor A who act for the trustee and deceased estate, that a grandchild of the deceased intended to lodge a family provision claim upon the estate.

On DD/MM/20YY, probate was granted to Child A.

At the deceased's time of death, another one of their children was living at Property A and continued to do so until MM/20YY when they vacated to allow the property to be prepared for sale.

The property was then rented through a real estate agent from DD/MM/20YY until date of sale.

In MM/20YY, the trustees became aware of an issue with the property titles and engaged a solicitor to rectify this situation. The trustees discovered that a parcel of land within the properties was not owned by the deceased according to the State title records.

The trustees lodged an application for possessory title of all 3 properties.

From MM/20YY until MM/20YY, the trustee allowed a local farmer to agist cattle on the land.

On DD/MM/20YY the Family Provision Claim by the grandchild was finalised by the courts.

On DD/MM/20YY, the issues concerning the title documents were rectified, enabling all 3 properties to be placed on the market.

Between MM/20YY and MM/20YY, the land was flooded due to a floodgate being opened to protect the local town and residential area. This required some clean-up of the properties prior to sale.

On DD/MM/20YY, the trustees engaged Real Estate Company A to find buyers for the 3 properties. The trustees accepted the agent's advice to sell the properties separately and place each on the market at different times.

On DD/MM/20YY, the agent listed Property C.

On DD/MM/20YY, the agent listed Property A.

On DD/MM/20YY, the agent listed Property B.

Real Estate Company A found purchasers for Property C, and later the same purchaser bought Property B. They tried for some time but were unable to find a buyer for Property A.

Around MM/20YY, the trustees rejected an offer of $XXX for Property A.

On DD/MM/20YY, the trustees engaged a new agent, Real Estate Company B to find a buyer for Property A.

On DD/MM/20YY, Property A sold for $XXX.

On DD/MM/20YY, Property A settled.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 section 118-120(3)

Income Tax Assessment Act 1997 section 118-115