Edited version of private advice

Authorisation Number: 1052381022375

Date of advice: 11 April 2025

Ruling

Subject: CGT - deceased estate

Question 1

Will the Commissioner exercise his discretion under section118-195 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 1

Yes.

Due to the complexities involved in the administration of the estate, the right to reside afforded by the will, and the challenge to the terms of the will made by the state trustees, on behalf of the spouse of the deceased, the Commissioner will grant an extension of time to dispose of the property and disregard in full any capital gain or loss made on the disposal.

This ruling applies for the following period:

Year ending XX XXX 20XX.

The scheme commenced on:

XX XXX 20XX.

Relevant facts and circumstances

On XX XXX 20XX Person A (the deceased) acquired their ownership interest in Property A.

The property was less than 2 hectares.

The deceased resided at the property from the date or purchase with their spouse Person B until their passing.

On XX XXX 20XX the deceased passed away.

The will of the deceased nominated a former partner of Law Firm A, Person C, as executor and trustee of the estate.

Clause 4 of the will gave a right to reside to Person B of any of X properties owned by the deceased at the time, including Property A. This right to reside existed for their lifetime or until such time as they remarried or entered into a de facto relationship.

The will also provided for:

•                     the estate to provide Person B with a lump sum amount that would bring them up to the income limit permitted to be held by a single person in receipt of the full aged pension

•                     the estate to provide Person B with a fortnightly amount that together with any other income they may receive will be equal to the maximum allowable by any one single person in receipt of the aged person

•                     should Person B remarry or enter into a de facto relationship, their right to reside would cease. However, the will also provided that should they return to a single relationship status, the right to reside in any one of the four properties of their choosing would be reinstated

•                     the estate to cover the cost of return economy airfares for Person B to return to their country of birth and visit their family once in every 5 years

•                     upon the passing of Person B, the remainder of the estate would pass to X relatives of the deceased as beneficiaries.

Person B continued residing at Property A where they had previously resided with the deceased as their spouse.

On XX XXX 20XX probate was granted to Person C as trustee of the estate.

On XX XXX 20XX the title of the property was transferred to Person C as trustee.

On XX XXX 20XX Person C resigned as trustee of the estate and was replaced by Person D and Person E (the trustees).

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

On XX XXX 20XX a financial management order was made for management of the affairs of Person B and this guardianship was granted to the relevant state's public trustee (state trustee).

In XXX 20XX Person B travelled back to their country of birth to visit family. This trip was originally intended to last approximately X months.

On XX XXX 20XX one of the trustees received an email from a relative of Person B, advising that Person B had decided to remain in the country of their birth with family and was not intending to return to Australia.

On XX XXX 20XX the trustees sent a letter to the state trustees enquiring as to whether the state trustees would enter into a deed with the trustees of the estate enabling them to sell Property A with the proceeds of the sale to go into trust where they would be available should Person B decide to return to Australia to live. It was noted that the property was in a state of disrepair and would need to be attended to.

On XX XXX 20XX the trustees sent a letter to the state trustees following up on their previous correspondence.

On XX XXX 20XX the state trustees sent an email to the trustees of the estate advising they were attempting to reach Person B's family in order to ascertain Peron B's views.

On XX XXX 20XX the trustees of the estate sent an email to the state trustees querying if they had been able to contact Person B's family. It was noted again that the property was in a state of disrepair and a decision needed to be made regarding the property.

On XX XXX 20Xx the trustees of the estate sent an email to the state trustees, referencing a phone conversation held on XX XXX 20XX regarding providing a copy of the deceased's will to the family of Person B.

On XX XXX 20XX the state trustees replied to the email about the will and advised also that a hearing had been held on XX XXX 20XX that saw the state trustees continued management of the affairs of Person B.

On XX XXX 20XX the trustees of the estate sent a letter to the state trustees, referencing a previous letter dated XX XXX 20XX and advising that enclosed with this letter was a cheque for $X which was payment of funds to Person B.

On XX XXX 20XX the trustees of the estate sent a letter to the state trustees following up on earlier correspondence in which they were seeking consent to sell Property A. The letter listed numerous attempts to engage on the matter. It also advised the property was derelict and not fit to let.

On XX XXX 20XX the trustees of the estate wrote to the state trustees seeking a response to their previous letter.

On XX XXX 20XX the trustees of the estate wrote to the state trustees seeking a response to their X letters, X telephone call, and X telephone messages.

On XX XXX 20XX the trustees of the estate received an email from the state trustees confirming that the right to reside had been relinquished.

On XX XXX 20XX the trustees of the estate received an email from the state trustees confirming that the right to reside had been relinquished and consent given to sell Property A. The email referred to a previously mentioned Deed and that proceeds of the sale were to be held in trust in the estate and to be made available for Person B on request by the state trustees. It asked that the Deed be provided as soon as possible.

On XX XXX 20XX the trustees of the estate sent an email to the state trustees advising that they received advice that the email confirming the relinquishment of the right to reside was sufficient for them to proceed with the sale of the property. It noted that under the will none of the capital of the estate could be paid to the beneficiaries until the passing of Person B and confirmed the intent for proceeds of the sale to go to the estate. The email advised that if the state trustees wished the deed to reflect this they could send a draft deed for approval.

On XX XXX 20XX the state trustees sent an email to the trustees of the estate. It referenced previous communications and Person B's entitlements under the will. It asked for clarification as to what types of claims Person B could make on the estate in the future and that any Deed was the responsibility of the trustees of the estate.

On XX XXX 20XX the trustees of the estate wrote to the state trustees advising they were proceeding with the sale of Property A. The letter further advises that the will already made financial provisions for Person B and that following their death the residual of the estate passed to the beneficiaries. The letter advised the trustees did not have the power under the will to make additional funds available to Person B beyond those stipulated.

On XX XXX 20XX the state trustees replied by email. This referenced three previous communications which had advised that the proceeds of the sale would be invested in the estate and would be available should Person B return to Australia. The email referenced Person B's entitlement to a capital sum and a fortnightly amount. It advises that it is not definitive that they would not return to Australia at some point in the future. The termination of the right to reside was withdrawn.

On XX XXX 20XX the state trustees sent an email seeking the date and sum of the capital amount already paid to Person B and whether the proceeds of the sale of Property A would be invested and an income paid to Person B for their lifetime.

On XX XXX 20XX the trustees of the state replied advising that the amount of $X was previously sent on XX XXX 20XX and that as the termination of the right to reside had been withdrawn the property had not been put on the market and there were no proceeds to use for any income.

On XX XXX 20XX the state trustees replied by email confirming the details of the prior email and advising they look forward to hearing further proposals from the trustees of the estate.

On XX XXX 20XX the state trustees sent an email to the trustees of the estate following up on any further proposals the trustees may be considering.

On XX XXX 20XX the trustees of the estate replied by letter seeking clarification as to their understanding of the will and Person B's right to income and monies under the will and advising that court authorisation to sell the property is being considered.

On XX XXX 20XX the state trustees sent an email to the trustees of the estate restating that the relinquishment of the right to reside had been made on the understanding that a deed was going to be put in place that afforded Person B with income and/or monies from the proceeds of the sale.

On XX XXX 20XX the trustees of the estate sent an email to the state trustees stating that no deed or proposal was going to be put forward whereby the proceeds from the sale of Property A would be made available for Person B for their benefit for their lifetime. The email advises that the only options are to retain the property or seek court authorisation to sell it.

On XX XXX 20XX the state trustees wrote a letter to the trustees of the estate advising that any application to the courts to sell Property A would be opposed. They advised that Person B was hoping to find rental accommodation and needed financial assistance for this. The state trustees view was that a deed would be the better option for both parties. They put forward the view that the right to reside had value and that to relinquish it should result in compensation. They raised the question of an out of time family provision claim and also requested a full accounting of the estate.

On XX XXX 20XX the trustees of the estate responded, advising that the sale of Property A was being abandoned. The trustees noted they would not be agreeable to an extension of time for a family provision claim. They declined to provide the accounts of the estate.

On XX XXX 20XX the state trustees wrote a letter regarding the proposed alterations to the will. They noted that leaving Property A vacant would have a negative impact on the estate, and to Person B and the residual beneficiaries of the estate. They advised they are open to proposals.

On XX XXX 20XX the trustees of the estate responded advising that they do have the power under the will to rent the property and that they had no proposals to make.

On XX XXX 20XX the state trustees wrote to the trustees of the estate disputing their right to rent Property A and restating their openness to proposals for settlement.

On XX XXX 20XX the trustees of the estate wrote to the state trustees making an offer for the estate to pay Person B a lump sum amount provided they relinquish their right to reside and relinquish their entitlement to the regular fortnightly payments.

On X separate occasions the trustees of the estate sent emails following up on their offer.

On X occasions the state trustees replied advising they were waiting on instructions from Person B and their family.

On XX XXX 20XX the trustees of the estate sent another email to follow up.

On XX XXX 20XX the state trustees responded that they still had not been able to make contact directly with Person B or their family. Additionally, they queried the calculations used by the trustees to arrive at the amount offered as a lump sum.

On XX XXX 20XX the trustees of the estate advised they had reviewed their calculations and revised their offer to a new higher lump sum amount. This was made contingent on the same conditions as the earlier offer.

On XX XXX 20XX Law Firm B, on behalf of the state trustees, wrote to the trustees of the estate. The letter advised that the offer would be accepted. It further advised there would be court costs involved and requested that the estate contribute a capped amount of money to the costs.

On XX XXX 20XX the trustees of the estate wrote to the residual beneficiaries advising they had negotiated an agreement with the state trustees and asking if the beneficiaries had any opposition to that.

On XX XXX 20XX the trustees of the estate replied to Law Firm B advising they accepted the proposal.

On XX XXX 20XX a summons was issued by the court on behalf of Person B.

On XX XXX 20XX an affidavit was filed with the court by the Legal Administrator for Person B. Included with the affidavit was copy of the Deed. The Deed sets out that:

•                     Person B will receive a lump sum from the estate

•                     this lump sum will represent final settlement of all their entitlements under the will

•                     that the state trustees agree to the trustees of the estate finalising the estate and paying the residual beneficiaries their respective entitlements under the will

•                     payment of the lump sum would be made to the state trustees within 21 days of the court approving the terms of the deed.

On XX XXX 20XX the Supreme Court made orders to accept the terms of the deed.

On XX XXX 20XX a real estate agent was engaged to sell Property A.

On XX XXX 20XX Property A sold with settlement occurring on XX XXX 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195