Edited version of private advice

Authorisation Number: 1052305407614

Date of advice: 16 September 2024

Ruling

Subject: Commissioner's discretion - deceased estate

Question

Will the Commissioner exercise the discretion under section 118-195 of the Income Tax Assessment Act 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 ended XX XXXX 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

Before 20 September 1985, the deceased acquired the property.

The property is less than 2 hectares in size.

On XX XXXX 20XX, the deceased passed away.

The deceased was not a foreign resident.

The property was the deceased's main residence at the time of their death and was not used to produce assessable income at this time.

The deceased lived in the property alone at the time they passed.

After the deceased passed, the property remained vacant until it was sold.

The deceased was a hoarder who accumulated items in the property.

In the deceased's last will, the deceased appointed their late partner as executor. In the event, they predeceased them, they appointed person A and person B as the executors of their will.

In XXXX 20XX, agent A was contacted to inquire about selling the property.

On XX XXXX 20XX, in response to the COVID-19, location A shifted into stage 4 restrictions. These restrictions consisted of a XXkm radius restriction and curfew.

For a period, person A's employment required him to travel overseas.

On XX XXXX 20XX, Probate was granted to person A and person B (the executors).

After the deceased passed, the executors received several reports from the police that the property subject to break-ins and theft. Following the break-ins, the police informed person B that they had an exemption to the stage 4 restrictions on 5km travel.

On XX XXXX 20XX, the travel limit in location A was increased.

On XX XXXX 20XX, the restrictions were brought into line with regional restrictions with travel now being allowed to and from anywhere in state A.

In XXXX 20XX, person A travelled to the property to start the cleaning process. They used skips and hired an external contractor to clear out all the rubbish on the premise due to the number of items hoarded on the property.

On XX XXXX 20XX, agent A sent you the requirements to get the property ready for sale.

From another period, person A was deployed overseas as part of their employment.

On XX XXXX 20XX, your insurance provider, insurer A sent you correspondence stating that they have received the insurance claim regarding the original break-in.

On XX XXXX 20XX, company A came to fix the locks and board up the doors at the property as a result from the break-ins.

On XX XXXX 20XX, a storm damaged the property. The storm destroyed a shed, which was used to connect electricity and caused other damage to the property.

On XX XXXX 20XX, insurer nominated company B as your designated builder for the reinstatement of the property damage from the storm. Company B provided you with a quote of the storm damage to the property.

On XX XXXX 20XX, you alerted insurer A that you have made the payment company A and requested the amount be reimbursed.

On XX XXXX 20XX, company C sent a contract for rectification works for the property which were a result from the break-ins and theft. This contract was signed by person A.

Over a period, you made XX payments for rubbish removal and shed demolition,

On XX XXXX 20XX, the executors received a contract from company B for the repairs to the property from the storm.

On XX XXXX 20XX, person A's partner, signed a contract with company B authorising the scope of works and for them to proceed with the repairs.

On XX XXXX 20XX, company B confirmed with the executors that the rebuild of the shed was not achievable due to the shed sitting to close to the boundary line of the property. The executors would require a building permit and there was no guarantee it would be approved. Company B advised them to pursue a cash settlement.

On XX XXXX 20XX, the executors received a quote for planning project and permit.

On XX XXXX 20XX, the executors received a quote from company D for the disconnection and removal of the existing tree damaged meter switchboard and sub circuits. The work included the installation of a new free-standing switchboard. This quote expired on XX XXXX 20XX.

On XX XXXX 20XX, the executors received another quote from company D for the disconnection and removal of the existing tree damaged meter switchboard and sub circuits. The work included the installation of a new free-standing switchboard.

On XX XXXX 20XX, insurer A sent information on a cash settlement.

On XX XXXX 20XX, insurer A sent information on an additional cash settlement.

On XX XXXX 20XX, insurer A sent information on a cash settlement., the executors paid for carpentry works to supply and install a new ceiling panel and side beadings to the veranda, which were damaged from the storm.

On XX XXXX 20XX, power was reconnected to the property.

On XX XXXX 20XX, gas was reconnected to the property.

On XX XXXX 20XX, the executors engaged agent A to sell the property.

On XX XXXX 20XX, the property was listed for sale.

On XX XXXX 20XX, the executors signed a contract to sell the property.

On XX XXXX 20XX, the purchaser signed the contract.

On XX XXXX 20XX, the property settled.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

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.

In your case, the deceased acquired their ownership interest in the property before 19 September 1985. After the deceased passed away, you owned the property as trustees of the estate. The property was the deceased's main residence until just before they passed away and remained vacant until it was sold.

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 17 of 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:

•         You were impacted by COVID-19 for a period.

•         Between XX XXXX 20XX to XX XXXX 20XX, there were XX break-ins at the property.

•         On XX XXXX 20XX, a storm damaged the property. The storm destroyed a shed, which was used to connect electricity and caused other damage to the property.

We also considered the following unfavourable factors:

•         There were unexplained periods of inactivity by you in attending to the sale of the property.

•         It took you until XXXX 20XX to start cleaning the property.

•         Although the storm caused damage to the shed and veranda of the property. The main dwelling on the property only required minor repairs. You were also not actively managing the repair of the shed. This is evidenced by receiving quotes and letting them expire. Even though the shed was originally used to connect power to the property, it took more than XX months to decide to get a new connection set up to the house.

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. You are also entitled to the 50% CGT discount in relation to the property.