Edited version of private advice

Authorisation Number: 1052359663715

Date of advice: 26 March 2025

Ruling

Subject: CGT - deceased estate

Question 1

Will the Commissioner exercise the discretion under section 118-195 of the 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 of the dwelling and up to 2 hectares of adjacent land?

Answer 1

Yes.The circumstances were highly complex and there were a number of extenuating factors outside the control of the executor that delayed the administration. Having considered your circumstances and the relevant factors the Commissioner will allow an extension of time under section 118-195 of the ITAA 1997. However, the extension only applies to the dwelling and the land to the extent that the land was used primarily for private and domestic purposes in association with the dwelling, up to a maximum area of 2 hectares. This is known as adjacent land.

You can apply the main residence exemption to land of your choice in addition to the land under the dwelling. However, subsection 118-120(3) of the Income Tax Assessment Act 1997 (ITAA 1997) specifies that the total of the land under the dwelling must not exceed 2 hectares. The land does not have to be contiguous to, that is, touching or in contact with, the land on which a dwelling is situated to be 'adjacent' to the dwelling (Taxation Determination TD 1999/68- Income tax: capital gains: is 'adjacent' land in terms of section 118-120 of the Income Tax Assessment Act 1997 limited to land contiguous to a dwelling?).

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:

1 July 20XX

Relevant facts and circumstances

The deceased passed away on XX/XX/20XX.

The property was located at XXX and was built in the early XXX's.

The deceased acquired the property prior to 20 September 1985 through an inheritance from their parents on XX/XX/19XX.

The deceased moved into an aged care nursing home facility due to having an illness on XX/XX/20XX.

The deceased was an Australian resident for tax purpose.

The property

The property was the main residence of the deceased.

You are applying the 'absence rule' for the period the deceased entered into the permanent care until the property was sold. The six-year absence rule allows for the property to continue to be treated as a main residence.

The property was occupied by the deceased XX and XX until the date of sale. They did not pay rent for living in the property.

The 2 hectares portion of the property was not used to produce assessable income at the time of their death.

The property was situated on is XX.XX hectares, which is more than 2 hectares.

The taxpayer obtained a valuation that identities the relevant X hectares used as the main residence of the deceased.

The property over the X hectares has continued to be used for XX by the XX and remained as a going concern.

The will

The last Will of the deceased is dated XX/XX/20XX and outlines that:

a.     the deceased Item 1 to XXX (Gift failed by ademption).

b.     a specific Item 2 of $XXX to XXX.

c.     the rest and residue of the estate equally between the deceased's beneficiaries.

Two individuals were named as the executors and trustees of the decease estate.

Probate was granted to the one executor by the Supreme Court of XXX on XX/XX/20XX under case number XXXXX. The other executor renounced their entitlement to a Grant of Probate.

The assets of the estate as at the date of death (XX/XX/20XX) were listed and provided.

The deceased's widow, XX is an eligible person to make a family provision claim under Chapter XX of the Succession Act 2006 (NSW). This family provision claim must normally be commenced within 12 months of the deceased date of death although the court may grant leave to make an application out of time in certain circumstances.

You decided it was prudent to wait for the 12 months to elapse for the deceased XX expiration in XX 20XX, prior to dealing with the property.

Deed of family arrangement

On XX/XX/20XX, a Deed of family arrangement was finalised. One of the beneficiaries expressed the desire to purchase the Property from the estate following the expiry of the 12-month family provision claim. Under the terms of the arrangement, XXX would be responsible for the payment of the Item 2 to XXX and the estates costs, expenses and taxes due to the insufficient assets in the estate.

Under the terms of the Deed, the completion date for XXXX to complete the purchase of the Property and make all the payments was 60 days from the date of the Deed. Additional terms included that the Executor had the power to extend this time of completion if necessary.

On XX/XX/20XX, you extended the completion date to XX/XX/20XX.

On XX/XX/20XX, XXX's solicitors, advised that XXX would not proceed with the transfer of the Property.

Listing the property

On XX/XX/20XX, the Property was listed for sale by the real-estate agent.

The Property was marketed by way of an Expression of Interest campaign which closed on XX/XX/20XX.

On XX/XX/20XX, the agent issued a sales invoice to a prospective purchase - XXXXX Pty Ltd. They subsequently did not proceed with the purchase.

On XX/XX/20XX, XXX was provided a draft contract to determine if he could obtain finance to complete the purchase.

On XX/XX/20XX, the agent had other negotiations with at least XX prospective purchasers following the closing of the expression of interest period.

On XX/XX/20XX, the Agent issued another sales invoice to the buyer ZZZZ Pty Ltd trustee for the YYYYY Trust for $XXXX.

On XX/XX/20XX, the contract was not exchanged - the agent forwarded a copy of the contract signed by the director XXX with a guarantee clause signed by XXXXX to the executor and the executor's solicitors. You also signed a counterpart contract.

A discussion was held to confirm that XXXX should not have signed the guarantee clause in the contract. Another offer was made to XXXXX for $XXXX, which was accepted.

Litigation

On XX/XX/20XX, legal action was commenced by the solicitors of XXXXX, including an injunction who asserted that there was a legal binding contract with them.

On XX/XX/20XX and XX/XX/20XX, correspondence threatening the legal action was received.

XX/XX/20XX, the estate solicitors XXX responded disputing each claim made in their XX/XX/20XX letter and denying the existence of a binding contract.

On XX/XX/20XX, two beneficiaries advised the executor to proceed with the offer from XXXX, a draft contract was sent to XXX Solicitors with settlement being 30 days after the contract date. XXXXX were advised of the dispute.

On XX/XX/20XX, the deceased estate solicitors wrote to the solicitors for XXXX advising that XXX had been received and the executor intends to proceed on the basis of XXXX. They advised that an application for guidance from the Court pursuant to r 54.3 of the Uniform Civil Procedure Rules would be sought and invited XXXX to make its best and final offer.

On XX/XX/20XX, XX's solicitors declined to make XXXX, asserting the existence of a binding agreement and notifying that XXXXX would intervene in the application to the court.

On XX/XX/20XX, the estate solicitors responded by making a Supreme court application before the Duty Judge honour XXXXX made pursuant to r54.3 of the Uniform Civil Procedure Rules which allows an executor to apply for guidance from the court. This order sought included an order that the executor was at liberty to exchange contracts for the sale of the property with XXXXXX Pty Ltd.

As per the XXXX's solicitors indicated, the court made orders for short service of the summons and supporting affidavits on XXXXXX and for the summons to be returned before the court on XX/XX/20XX.

On XX/XX/20XX, XXXX lodged a caveat over the title of the Property.

On XX/XX/20XX, in court before Judge Honour XXXX made orders, including that the matter be moved to the Expeditions List and that the executor was restrained from dealing with the property until the proceedings were resolved.

On XX/XX/20XX, the matter was listed before XXXXXX, the Expeditions List Judge. XXX made orders including setting a timetable for the service of pleadings and evidence and listing the matter for a two-day hearing on XX/XX/20XX and XX/XX/20XX.

On XX/XX/20XX and XX/XX/20XX, the Judgereserved the judgment, and the executor was still subject to the restraining order preventing him from dealing with the property.

On XX/XX/20XX, judgement was handed down by the court finding wholly in favour of the executor. The court ordered that the executor was free to exchange contracts with an arm's length purchaser for the highest price thus lifting the restraint on exchanging. The order was made to remove the caveat registered over the title to the property.

Exchange of contracts

On XX/XX/20XX, the sale of the property contract was signed by XXXX.

On XX/XX/20XX, the caveat was removed from the title of the property by way of withdrawal of the caveat.

Settlement occurred on XX/XX/20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-120

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 section 118-145