Edited version of private advice

Authorisation Number: 1052340213863

Date of advice: 5 December 2024

Ruling

Subject: Commissioner's discretion - deceased estates

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

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 ended XX XXXX 20YY.

The scheme commenced on:

XX XXXX 20YY

Relevant facts and circumstances

The Deceased acquired sole ownership of the Property on XX XXXX 19YY.

The Deceased passed away on XX XXXX 20YY. The Property was the main residence of the Deceased up until they passed away.

The Will of the Deceased appointed the Executor as sole executor of the estate.

On XX XXXX 20YY, the Executor's spouse suffered from a medical condition.

You supplied multiple medical reports, assessments, and letters in support of exercising the discretion.

The Executor attended to the following caregiving obligations:

•         Caring duties towards their spouse with a long-term medical condition.

•         Support to their children and grandchildren, all of which have various medical conditions.

On XX XXXX 20YY, the Supreme Court of the State granted probate to the Executor.

In XXXX 20YY, the Executor received assistance from a social worker. The Executor met with a solicitor and commenced organising the sale of the property.

On XX XXXX 20YY, the body corporate of the property provided notice to the Executor to sell the property within XX months due to unpaid fees.

The works to prepare the Property were completed in conjunction with the property being listed for sale, including:

•         General cleaning, gardening, and decluttering.

•         New kitchen fixtures.

•         Replacement of damaged skirting boards, window frames and doors.

•         New stovetop and oven.

•         Interior & Exterior painting.

•         New laundry sink.

•         Various minor fixes, completed through a hired handyman.

The Executor sold the Property, and it settled on XX XXXX 20YY.

The Property remained vacant after the Deceased passed away and was not used to produce assessable income.

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 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 the property before 19 September 1985. After the deceased passed away, you owned the property as trustee of the estate. The property was the deceased's main residence until just before they passed away and was not used to produce assessable income at that time.

The property sale settled more than 2 years after the deceased's death. Therefore, you require the Commissioner's discretion to extend the 2-year period to be eligible for an exemption.

Practical Compliance Guideline PCG 2019/5 Capital gains tax and deceased estates - the Commissioner's discretion to extend the 2-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 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. Paragraph 19 of PCG 2019 explains a lengthy delay will not prevent us from allowing a longer period where relevant circumstances caused the delay and persisted for the overwhelming majority of the total period.

The factors we view favourably to exercising the discretion include:

•         The Executor has significant and serious sensitive personal circumstances that have impeded their ability to administer the estate.

The factors we view unfavourably include:

•         The Executor held the property for XX years and XX months.

Despite the lengthy delay, we accept that the Executor's health and family circumstances prevented them from attending to the administration of the estate. Having considered the relevant facts, we will apply the Commissioner's discretion under section 118-195 of the ITAA 1997.