Edited version of private advice

Authorisation Number: 1052322123299

Date of advice: 24 October 2024

Ruling

Subject: Commissioner's discretion - deceased estate

Question

Will the Commissioner exercise the discretion under section 118-195 of Income Tax Assessment Act 1997 to allow an extension of time for you to dispose of your ownership interest in the dwelling acquired from a deceased estate 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 and 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:

XX XX 20XX

Relevant facts and circumstances

On XX XX 20XX, the deceased's spouse passed away.

Upon the death of the deceased spouse, the property, which was wholly owned by the deceased spouse, was left entirely to the deceased. Therefore, the deceased acquired the property on XX XX 20XX.

On XX XX 20XX, Legal representation was engaged, 8 days prior to the the deceased's date of death as the deceased wanted to change their will. This change was never actioned, and the will dated XX XX 20XX is the most current will.

As per the deceased's wishes that were never enacted, the will was to be updated to only include two of the deceased's children as the main beneficiaries, where the will named all three of the deceased's children as the main beneficiaries.

On XX XX 20XX, the deceased passed away.

At date of passing, the deceased owned a property located at XX XX XX, (the property).

The property was a Pre-CGT asset in the deceased spouse hands, therefore, when the deceased acquired the property under the will, the deceased acquired the property with a cost base being market value at the date of death of the deceased spouse, and an acquisition date at the date of death of the deceased spouse was XX XX 20XX.

The property is more than two hectares in size with a dwelling on it.

The deceased was the sole owner of the property when they died, and at that time it was their main residence and not being used to produce income.

The deceased left a will dated XX XX 20XX, which named XX XX and XX XX as Executors (the Executors / Trustees).

The deceased had three children: Person A, Person B and Person C.

On XX XX 20XX, Probate was granted to the two executors named in the will.

On XX XX 20XX, it was decided that Person A and Person B would make a Part IV claim to obtain a larger share of the estate, being what the deceased's wishes were. Person A and Person B engaged a legal firm.

Between XX and XX 20XX, there were correspondence between the executors, and the three children of the deceased.

On XX XX 20XX, Person A and Person B had prepared their affidavit in relation to the Part IV claim.

On XX XX 20XX, these affidavits were received by the executors and County Court applications were also made on this date.

On XX XX 20XX, an email was received by the executors that the principal of the legal firm had been charged with misconduct, this created delays in the processing of the file.

As the Part IV claim was being processed by the County Court, the beneficiaries were required to mediate.

On XX XX 20XX, Person C sent a letter to the other beneficiaries stating that they were ill at the current time, and mediation would need to be postponed until XX 20XX. This was confirmed via an email on XX XX 20XX, where Person C had booked in a surgery for XX XX 20XX and requested that mediation be organised for after XX XX 20XX.

On XX XX 20XX, Due to the principal of the legal firm no longer being able to work on the file, a new solicitor was appointed, which created additional delays including not being able to mediate until XX 20XX.

From XX 20XX until XX 20XX, questions were raised as to whether Person B being both an executor and a beneficiary that was raising a Part IV claim was in breach of independence and whether they should renounce their role as executor. It was found in XX 20XX that this was not recommended nor feasible and for the time being would remain as an executor.

On XX XX 20XX, a letter from Legal firm stated that the executors were awaiting documents from Person C and for Person C to agree to a mediation date.

From XX 20XX to XX 20XX, multiple offers were drafted by the legal firm, these out of court offers were drafted with the intention of preventing litigation from occurring and to save time and costs. The final offer, once finalised was to be later sent to Person C and the other beneficiaries.

On XX XX 20XX, after back-and-forth drafts between the executors, the solicitors and Person A and Person B, an offer was agreed upon and was sent to Person C.

A week later, a new paralegal was appointed onto the file and again, a new contact and further delays occurred.

On XX XX 20XX, Person C rejected the offer, and they made no counteroffer.

Between the months of XX 20XX and XX 20XX, quotes and due diligence reports were commissioned, contact was also made with the local town planning department to determine whether the property could be sub divided into three separate lots.

The reason for doing this was to provide each beneficiary with a third of the property, where they could do what they wished with that third of the property. This would be ideal, not to increase the sale price of the property but to allow Person A and Person B who wished to retain the property, retain it, and for Person C who did not wish to retain the property, to sell their lot of the property separately.

The subdivision of the property was found not to be feasible, and this plan did not go ahead.

XX 20XX, the executors wished to engage a new solicitor, and the legal firm was no longer engaged.

XX 20XX, A new legal firm was engaged.

On XX XX 20XX, an email was received by the new legal firm that the County Court proceedings were to go ahead from XX XX 20XX.

On XX XX 20XX, the following was received by the County Court via court orders:

•         By XX XX 20XX at 4.00pm, Person B as beneficiary must file and serve a position statement of no more than 6 pages on the Estate and the beneficiaries;

•         By XX XX 20XX at 4.00pm, Person D as executor must file and serve a position statement of no more than 6 pages on Person B and the beneficiaries;

•         By XX XX 20XX at 4.00pm, each of the beneficiaries named in the will is permitted to file and serve a position statement;

•         By XX XX 20XX, the parties are to mediate the dispute.

A similar court orders were received by the County Court in relation to Person A, as beneficiary.

In XX 20XX, a valuation was completed to determine the value of the property at the date of death of the deceased's spouse, for the purposes of determining the deceased's cost base. This valuation was segregated with a valuation for the main residence portion (dwelling and the adjacent two hectares), and the residual XX hectares.

This valuation also segregated the sale price of the property with a valuation for the main residence portion (dwelling and the adjacent two hectares), and the residual XX hectares.

XX 20XX, all of the parties mediated, came to agreement and Terms of Settlement were signed by the beneficiaries.

On XX XX 20XX the Terms of Settlement were signed.

Once the Terms of Settlement were signed, real estate agents were immediately engaged, and the property was listed for sale.

On XX XX 20XX, A contract was signed for the property.

On XX XX 20XX, the property settled.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195