Edited version of private advice

Authorisation Number: 1052300513419

Date of advice: 4 September 2024

Ruling

Subject: CGT - 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

Yes.

Having considered your circumstances and the relevant factors the Commissioner will allow an extension of time. Further information about the Commissioner's discretion can be found by searching ato.gov.au for 'QC 66057'.

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, XX XX XX, died on XX XX 20XX.

At the time of their death the deceased owned the property at XX XX, XX, XX.

The property was the deceased's main residence and never used to produce income.

The property is more than 2 hectares.

The deceased's will appoints XX XX XX (Executor 1) and their de facto partner XX XX (Executor 2) as executors.

The sole beneficiary is the deceased's child, XX XX (the child).

The child resides in XX and was not informed of their parent's death until XX XX 20XX as contact details for them could not be found. The child flew to XX in mid-XX to organise the deceased's funeral.

Due to COVID-19 restrictions the child was unable to remain in XX and attend to preparing the property for sale.

Executor 2 commenced an application for probate, but at the end of XX 20XX unexpectedly passed away.

On XX XX 20XX probate was granted.

On XX XX 20XX the child was advised probate was completed.

On XX XX 20XX the child sought legal representation to assist with finalising the estate.

On XX XX the child's legal representation received correspondence from Executor 1 regarding the transfer of the property to the beneficiary, stating that they had not received a written request from the beneficiary for the property to be transferred to them.

On XX XX 20XX the child lodged a complaint with the XXXX XX regarding the executor's reticence and lack of progress on administering the estate.

On XX XX 20XX the child's legal representation advised that Executor 1 had commenced the transfer of the property.

On XX XX 20XX the child's legal representation advised they would no longer act on the child's behalf as Executor 1 was proving unforthcoming.

In XX and XX 20XX, the child followed up on the progress of title transfer with XX XX (Executor 1's legal representative) and was advised the transfer was pending.

On XX XX 20XX the child contacted XX (XX) and was advised the property transfer was completed on XX XX 20XX and title was with XX XX. Delays due to documentation errors and mismanagement contributed to the delay in the transfer of title.

On XX XX 20XX the child arranged for locks to be changed on the property as they were unable to obtain the keys from Executor 1.

On XX XX 20XX the child flew to XX and commenced organising works to prepare the property for sale. This included removal of car wrecks, organisation of transport of the deceased's vehicle to XX, electricity connection, skip bin and rubbish removal, plumbing repair to hot water and water pump and window repair and cleaning.

On XX XX 20XX the child organised for the electrical wiring replacement and regulatory safety upgrade to be done.

On XX XX 20XX the property was cleaned, including walls, carpets and blinds and exterior pressure cleaning.

On XX XX 20XX the child engaged a real estate agent to sell the property.

On XX XX 20XX a contract of sale was signed, with settlement occurring on XX XX 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-115

Income Tax Assessment Act 1997 Section 118-120

Income Tax Assessment Act 1997 section 118-195

Further issues for you to consider

The main residence exemption extends to a maximum of two hectares of land adjacent to the dwelling, including the area of the land on which the dwelling is built (exempt land). The land does not have to be contiguous to, that is, touching or in contact with, the land on which a dwelling is situated to be 'adjacent' to the dwelling (Taxation Determination TD 1999/68).

Adjacent land is only included in the two-hectare exemption if the land is used primarily for private or domestic use and not to earn assessable income, such as primary production.

Any excess land (non-exempt land) over the two hectares will be subject to the CGT provisions as it is not covered by the main residence exemption.

Where a taxpayer has land that exceeds two hectares and wishes to select the main residence exemption, Taxation Determination TD 1999/67 outlines how to calculate any capital gain or capital loss on land in excess of the two hectares for the main residence exemption.

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.