Edited version of private advice

Authorisation Number: 1052298567210

Date of advice: 30 August 2024

Ruling

Subject: Commissioner's discretion - deceased estates

Question

Will the Commissioner exercise the discretion under section 118-195 of Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time for you to dispose of your ownership interest in three vacant lands and disregard the capital gain or capital loss you made on the disposal?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

Before 20 September 1985, you and the deceased purchased vacant land as joint tenants (property A).

Property A is less than 2 hectares.

Before 20 September 1985, the deceased solely purchased vacant land (property B).

Property B is more than 2 hectares.

Before 20 September 1985, you and the deceased inherited vacant land (property C).

Property C is more than 2 hectares.

All three properties were not used to produce income and had no dwellings erected on them.

On XX XXXX 20XX, the deceased passed without a will.

After the deceased passed, there were no improvements made to the properties, and they remained vacant until they were sold.

You experienced the following delays in selling the properties:

•         Attempting to locate a Will of the deceased.

•         In applying for the letters of administration, due to a backlog in the court system.

•         In resealing the letters of administration in the states the properties were located.

Due to the delays, the three properties were sold more than two years after the deceased passed.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-115

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 section 128-50

Reasons for decision

A capital gain or capital loss may be disregarded where a capital gains tax (CGT) 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 before 19 September 1985, 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.

Subsection 118-115(1) of the ITAA 1997 provides that a dwelling includes a unit of accommodation that is a building or is contained in a building and consists wholly or mainly of residential accommodation, and the land immediately under the unit of accommodation.

The three properties were sold more than two years after the deceased's death. Therefore, you require the Commissioner's discretion under s118-195 of the ITAA 1997 to extend the two-year period to be eligible for an exemption.

In your case, the deceased acquired their ownership interest in the three properties before 19 September 1985. However, there were no dwellings on each of these three individual properties. As they have remained vacant land for the duration of the ownership period of the deceased and due to there being a requirement for a dwelling to exist on the land, 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 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.