Edited version of private advice

Authorisation Number: 1052357935576

Date of advice: 11 February 2025

Ruling

Subject: Deceased estate -2-year discretion

Question 1

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 dispose of your ownership interest in the dwelling and disregard the capital gain or loss made on disposal?

Answer 1

No.

Having considered the relevant facts, the Commissioner will not apply the discretion under subsection 118- 195 of the ITAA 1997 to allow an extension to the two-year time limit.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

XX XXX 20XX

Relevant facts and circumstances

The Property is less than 2 hectares.

The Property was purchased Pre-CGT.

The deceased, passed away on XX X XXXX.

The Property was the main residence of the Deceased just before they passed away and was not used to produce assessable income.

The deceased left a will.

Probate was granted.

The tile of the Property was transferred into the names of the beneficiaries.

The Public Trustee completed administration of the estate.

The Property remained unoccupied from the date the deceased passed away up until settlement.

Covid restrictions caused a delay sorting through the deceased's belongings.

You provided a timeline of events.

No renovations were carried out on the property.

The property was advertised for sale.

You provided a copy of the contract of sale.

Settlement for the property took place.

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, that was the deceased's main residence and not used to produce assessable income just before their death, 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 beneficiary 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 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 17of 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, the administration of the estate by the Public Trustee took 22 months to complete and the multiple lockdowns in response to the COVID-19 pandemic in your State. We also considered once the property was listed on the market for sale, it sold within a typical timeframe and was not used for income producing purposes. There was no challenge to the ownership of the property or to the deceased's will causing delay to sell the property.

We further considered, the significant time you held the property before putting it on the market for sale. There was no challenge to the ownership of the property or to the deceased's will causing delay to sell the property. We also considered the length of time spent sorting through your parent's personal belongings and acknowledge the sensitivities involved in this. We considered the time cleaning the property before presenting the property to the market. This could not be classified as an exceptional circumstance preventing the sale of the property. There were no other significant factors provided that would delay selling the property. The property was not listed for sale once the title was transferred into the names of the beneficiaries. The delay in listing the property for sale was due to your choice.

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. The cost of repairs can also be included in the cost base of the property. You are also entitled to the 50% CGT discount in relation to the property.