Edited version of private advice

Authorisation Number: 1052372035215

Date of advice: 12 March 2025

Ruling

Subject: CGT - deceased estate

Question 1

Will the Commissioner exercise his discretion under section118-195 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?

Answer 1

No. The Commissioner will not exercise discretion to allow an extension to the two-year period to dispose of the dwelling and disregard the capital loss or capital gain made.

This ruling applies for the following period:

Year ended 20XX.

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Person A (the deceased) and their spouse Person B purchased property A (the property) on XX XXX 19XX.

The property is on less than X hectares.

Person C moved into the property in XXX 20XX to care for their parents Person B and Person A.

The deceased acquired their spouse's share of the property as a joint tenant on XX XXX 20XX when Person B passed away.

In XXX 20XX Person D, Person C's child, moved into the property to help their parent care for their grandparent who had developed dementia.

On XX XXX 20XX the deceased was admitted into palliative care.

The deceased passed away on XX XXX 20XX.

The property was the deceased's main residence for their lifetime.

The deceased's spouse, Person B, was nominated as executor and trustee of the estate under the Will in the first instance. As the spouse preceded the deceased, their son Person E was named as executor and trustee in the Will.

A codicil to the Will made on XX XXX 20XX appointed Person E and Person C as joint executors and trustees of the estate.

Person E and Person C were joint beneficiaries of the estate, with an equal share of the estate.

On XX XXX 20XX Person E and Person C attended a law firm for the reading of the Will.

On XX XXX 20XX Person E and Person C attended the law firm and received all legal documentation held by the firm relating to the deceased's estate.

On XX XXX 20XX the executors published a notice of intent to apply for probate of the deceased's estate.

On XX XXX 20XX a completed application for probate was mailed to the Supreme Court.

On XX XXX 20XX the Supreme Court sent a requisition for a copy of the death certificate of Person B as the first nominated executor of the deceased's estate.

On XX XXX 20XX, Person C filled out the online forms and attached the 'letter of requisition', but not the death certificate. Person C received emails that the filings were incomplete.

On XX XXX 20XX the death certificate of Person B was provided to the Supreme Court, with the delay for this being due to illness and a misinterpretation of the request.

On XX XXX 20XX probate was granted.

On XX XXX 20XX the title of the property was transferred into the names of the beneficiaries of the estate.

On XX XXX 20XX money was released from the estate to the beneficiaries who made the decision to use this to renovate and refurbish the property prior to putting it on the market.

From XXX 20XX to XXX 20XX the beneficiaries renovated and refurbished the property, doing the some of the work themselves. This renovation included:

•                Replacing windows and all gauze insect screens,

•                Replacing and modernising the lighting,

•                Demolished the old kitchen and replaced with a new kitchen,

•                Painting the interior and exterior of the house,

•                Replacing carpet in some rooms,

•                Replaced all old doorknobs,

•                Installing new timber flooring in some rooms,

•                Renovated the bathrooms and laundry,

•                Installing a colour bond fence,

•                Maintenance on garden irrigation system,

•                Installing frameless pool fence,

•                Reroofed patio and put insulation into roof,

•                Repaired and painted pool,

•                Replaced security door,

•                Landscaped the garden.

On XX XXX 20XX the property was listed on the market for sale with a real estate agency.

On XX XXX 20XX the selling price was reduced, as there had been no interest in the home.

On XX XXX 20XX the beneficiaries withdrew their agency agreement with the real estate agency.

On XX XXX 20XX the beneficiaries entered into a new agreement with another real estate agency and the property was slated for auction on XX XXX 20XX.

On XX XXX 20XX the property went on the market.

On X XXX 20XX contracts were exchanged and settlement took place on XX XXX 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Reasons for decision

These reasons for decision accompany the Notice of private ruling for Person C and Person E.

This is to explain how we reached our decision. This is not part of the private ruling.

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?

Summary

No. The Commissioner will not exercise his discretion under section 118-195 of the ITAA 1997 and allow an extension of time to the two-year period relating to the disposal of the property. The trustee/beneficiaries of the deceased estate are not exempt from tax on any capital gain made on the disposal of the property pursuant to section 118-195 of the ITAA 1997.

Further information about the Commissioner's discretion can be found by searching ato.gov.au for 'QC 66057'

Detailed reasoning

Section 118-195 of the ITAA 1997 states that if you own a dwelling in your capacity as a beneficiary of a deceased estate, or you owned it as the trustee of a deceased estate, that you are exempt from tax on any capital gain made on the disposal of the property if:

•                The property was acquired by the deceased before 20 September 1985, or

•                The property was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income, and

•                Your ownership interest ends within 2 years of the deceased's death.

The Commissioner has discretion to extend the two-year time period where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death. 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 outlines the factors that the Commissioner will consider when determining whether to exercise his discretion to extend the two-year period under section 118-195. This discretion may be exercised in situations where:

•                the ownership of a dwelling or the will is challenged

•                a life or other equitable interest given in the will delays the disposal of the dwelling

•                the complexity of a deceased estate delays the completion of administration of the estate

•                settlement of the contract of sale of the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control

•                restrictions on real estate activities imposed by a government authority in response to the COVID-19 pandemic

These examples are not exhaustive. They provide guidance on what factors the Commissioner would consider reasonable to exercise his discretion to extend the two-year period. Generally, the Commissioner will allow a longer period where the sale of the dwelling could not be 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. Consideration is given to whether the property was listed for sale as soon as practically possible after the resolution of any of these factors, and if the sale was completed within X months of the property being listed for sale.

PCG 2019/5 also outlines factors that would weigh against the Commissioner allowing a longer period. Where these factors play a role in any delay in disposing of the property, the Commissioner would not consider discretion to be appropriate:

•                waiting for the property market to pick up before selling

•                waiting for refurbishment of the dwelling to improve sale price

•                inconvenience on the part of the trustee or beneficiary to organise the sale of the dwelling, or

•                unexplained periods of inactivity by the executor in attending to the administration of the estate.

Whether the Commissioner will exercise his discretion under subsection 118-195(1) of the ITAA 1997 will depend on the facts of each case. The facts that caused the delay in disposing of the property are more important than the length of the delay.

In your case, we considered the illnesses and injuries of the parties and relations.

Application to your circumstances

In your case, you could not list the property for sale until probate for the deceased estate was granted. This occurred on XX XXX 20XX, just X months after the deceased's passing. The property was listed for sale on XX XXX 20XX, some XX months later.

A significant portion of the two-year period following the deceased's death was spent renovating the property before sale. While the property may have been in some disrepair, the decision to renovate the property was not outside of your control and was a material fact in the delay in disposing of the property. Once it was listed for sale, the property took X months to sell.

Having considered the relevant facts, we will not apply the discretion under subsection 118-195(1) to allow an extension to the two-year time limit. It is the Commissioner's view that the delay in disposing of the property was due to the decision to undertake considerable renovations, a delay that was not outside of your control.

The Commissioner has not exercised the discretion to extend the two-year period to dispose of a dwelling under section 118-195. Therefore, any capital gain made on the property from the date the deceased passed away until the property is disposed of will be taxable. That is, the first element of your cost base for the property is its market value on the deceased's date of death. The cost of the refurbishments can also be included in the cost base of the property.