Edited version of private advice

Authorisation Number: 1052322746518

Date of advice: 29 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 (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 periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Several decades ago, a residential property (the property), was owned by Personal A and Person B.

A short time later, Person A transferred their ownership interest in the property to Person B's spouse (Person C - the deceased) and Person B and the deceased's four children (Child 1, Child 2, Child 3, and Child 4) as tenants-in-common. This half interest transfer from Person A to the abovementioned parties was severed from the original title and was recorded in a new title reference (Title B).

Person B's ownership interest in the property was retained in the original title reference (Title A).

Several years later, Person B died intestate. Child 4 obtained letters of administration for Person B's estate approximately one year after their passing. At the time, the family decided that in order to keep the deceased living in the property, and to also ensure that the deceased had adequate income, Person B's estate would be kept intact and administered by Child 4.

In 20XX, the real property in Person B's estate (apart from that estate's interest in the property) was distributed to the beneficiaries. Person B's estate's half interest in the property remained registered to Child 4 as the administrator for Person B's estate (recorded under Title A).

In late 20XX, the deceased's four children transferred their interests in Title B to the deceased. Child 1 and Child 3 received $X each for their interest in the title, but Child 4 and Child 2 received no consideration.

Directly following this, the deceased owned the entire half-interest in the property (recorded under Title B), and Person B's estate's half interest in the property remained registered to Child 4 as the administrator for Person B's estate (recorded under Title A).

In mid 20XX, the deceased passed away and left a will.

The property was the deceased's main residence just before they passed away, and it was not producing any income just before the deceased passed away.

The property is less than two hectares in size.

Child 4 and Child 2 were appointed as executors of the deceased's will.

In early 20XX, Child 4 and Child 2 obtained grant of probate.

In early 20XX, Child 3 commenced legal proceedings in the Court seeking the filing of accounts - action against Child 4 as administrator of Person B's estate concerning the way the estate has been financially administered, along with Child 3 and Child 1's entitlements in both Person B's and the deceased's estates.

In mid-20XX, after much activity in the proceeding, including not less than X Hearings, the matter was referred to mediation and settled by the execution of Heads of Agreement concerning Child 3's entitlements in both Person B's and the deceased's estates.

In mid-20XX the Court made an order dismissing the proceedings.

To finalise the administration of both estates, the executors needed to sell the Property. Child 1, with the support of Child 3, made numerous demands before consenting to engage an agent to sell the property. Child 1 and Child 3 proposed a mediation to ventilate their concerns.

Child 1 also proposed that the parties enter into a deed of settlement. The executors and beneficiaries exchanged counterpart deeds in late 20XX, which provided that the executors were to sell the property as soon as reasonably practicable, and the balance of the sale proceeds was to be paid on the day of settlement as follows:

•                     25% to Child 4

•                     25% to Child 2;

•                     25% to Child 3 less the amount they has agreed to pay the estate of Person B, and

•                     25% to Child 1.

A short time later, in late 20XX, the executors sold the Property. Settlement occurred in mid-20XX (several months later).

The reason for the long settlement was due to the accepted offer having had the shortest settlement period of all offers considered.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195