Edited version of private advice

Authorisation Number: 1052411484821

Date of advice: 23 June 2025

Ruling

Subject: Capital gains tax - 2-year discretion

Question

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?

Answer

No

This ruling applies for the following period:

Year ended DDMMYYYY

The scheme commenced on:

DDMMYYYY

Relevant facts and circumstances

On DDMMYYYY, the deceased and spouse purchased the property registering on the title as joint proprietors.

On DDMMYYYY, the spouse died.

After the spouse's death, the deceased became entitled to become sole proprietor by survivorship, no steps were taken to have the property transferred and the title remained in joint names at the date of the deceased's death.

On DDMMYYYY, the deceased made a will, naming Person A, Person B and Person C as the beneficiaries. Person B was appointed as the executor of the estate.

On DDMMYYYY, the deceased died.

The property was the deceased's main residence up until the death and was not used to produce assessable income.

The property was under X hectares.

The property was the estates only significant asset.

At the time of the deceased's death, Person D, Person B and Person C were living in the property.

Shortly after the deceased's death, Person A, a beneficiary under the will agreed to allow Person D, Person B and Person C to continue to occupy the home for X months from the date of the deceased's death out of goodwill. Considering that it would take time for Person D to find alternative accommodation, this also in accordance with the deceased's wishes. The X months was to end on DDMMYYYY.

On DDMMYYYY, Person A sent a message via social media to Person D asking if they had any thoughts regarding selling the property or speaking with the executor Person B about the property, Person A also requested contact details for Person B.

On DDMMYYYY, Person D provided Person A with Person B's phone number to speak with them directly.

On DDMMYYYY, Person A called Person B and was informed that Person B had moved out of the deceased's property and that Person B intended to contact the probate office on DDMMYYYY. During this call Person B indicated that Person D was not taking the sale of the property well and mentioned Person D would get access to superannuation in X years, and if the property was sold before then Person D would be homeless and living on $X per week.

On DDMMYYYY, Person A contacted Person B to enquire about the appointment with the probate office. Person B advised they did not attend the appointment as were called into work and had an appointment for DDMMYYYY.

On DDMMYYYY, Person A contacted Person B asking for an update. Person B indicated they had spoken with a lawyer about probate, however, were dealing with a leaking roof and a flooded house. Person B also stated they were looking at options for sale of the property and would keep Person A updated. Person A messaged again later that day enquiring about what the lawyers said, and which lawyer Person B had engaged.

On DDMMYYYY, Person A asked Person B for an update. Person B advised they had not hired a lawyer. Person B advised Person A that the probate process takes time and to be considerate of that.

Between DDMMYYYY and DDMMYYYY, Person A sent several messages to Person B asking if probate had been applied for, Person A received no reply.

On DDMMYYYY, Person A notified Person B that they were seeking legal advice since the estate had not progressed and requested Person B's email and postal address for future correspondence.

On DDMMYYYY, pursuant to Person A's instructions, their solicitors, posted a letter to Person B stating that if Person B did not seek to obtain a grant of probate, proceedings would be commenced to have them propound the will or renounce. The solicitors requested a response by DDMMYYYY. Australia Post tracking confirms that the letter was delivered DDMMYYYY.

On DDMMYYYY, pursuant to Person A's instruction, the solicitors wrote another letter to Person B, requesting a response to the initial letter by DDMMYYYY. This letter was returned to sender as unable to be delivered and was not collected by anyone. No response was received to either letter.

Around DDMMYYYY, Person B contacted a real estate agent and instructed them to put the property on the market. Person B signed the sales authority and advertising schedule on DDMMYYYY and the real estate began to market the property, a for sale sign was placed at the front of the property and they had some open home inspections.

The real estate agent was not aware that Person B did not have a grant of probate at the time. The real estate agent ceased marketing the property after X weeks when Person B stopped responding to contact and they became aware that Person B did not have a grant of probate.

On DDMMYYYY, Person A issued proceedings in the Supreme Court pursuant to section 15 of the Administration and Probate Act 1958, seeking orders, inter alia, that instituted executor Person B be passed over as executor and an independent person be appointed to apply for a grant of letter of administration with the will annexed.

On DDMMYYYY, the beneficiaries of the estate signed terms of settlement (terms), providing the administrator be appointed to administer the estate as an independent administrator.

On DDMMYYYY, the administrator received a grant of representation for the deceased's estate.

Pursuant to the terms, it was agreed that Person D and Person C would vacate the property at the request of the administrator.

On DDMMYYYY, Person D advised the administrator that they would vacate the property within the next couple of weeks.

Between DDMMYYYY and DDMMYYYY, the administrator made several requests for Person D to vacate the property, so that it could be sold and the estate administered.

In or around DDMMYYYY Person C vacated the property, however Person D did not.

On DDMMYYYY, the administrator issued a supreme court proceeding seeking orders for the possession of the property, pursuant to Order 53 of the Supreme Court (General Civil Procedure) Rules 2015, after further unsuccessful attempts had been made to contact Person D.

On DDMMYYYY, orders for substituted service were obtained, as personal service of the court proceeding could not be effected.

On DDMMYYYY, the supreme court made orders for possession of the property, with a stay of X days from the date of the order.

On DDMMYYYY, Person D vacated the property and returned the keys to the administrator.

The administrator, after the property was vacated, retained a vendor advocate, real estate agent and professional staff to arrange to ready the property for sale via public auction.

After Person D vacated the property, it was found that there had been extensive water damage to the property which would require significant repairs before the house could be sold.

In DDMMYYYY, the administrator made a claim on the property's insurance.

Between DDMMYYYY and DDMMYYYY, the insurer obtained several quotes for repairs on the property to progress the claim.

On DDMMYYYY, the insurance claim was approved, and funds were received from the insurer.

Between DDMMYYYY and DDMMYYYY, extensive repairs were undertaken at the property, including removing flooring in several rooms, painting, cleaning caulking and reinstalling carpet.

On DDMMYYYY, the property was sold at auction for $X.

On DDMMYYYY, the settlement of the property occurred.

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 after 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 interests ends at the time of settlement of the contract of sale.

In your case, the deceased acquired the property after 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 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 discretions 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 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 Commissioners discretion which includes the sensitivity of your personal circumstances.

In your case we consider as favourable factors:

   • the property was purchased after 19 September 1985.

   • the property was the deceased's main residence up until their death.

   • the property was not used to produce assessable income.

   • the property was under 2 hectares.

   • the property was the estate's only significant asset.

We also considered:

   • the executor Person B did not obtain a grant of probate within two years of the deceased's death.

   • the executor Person B attempted to sell the property, just outside of the two-year period and the sale could not continue as they did not have a grant of probate.

   • the beneficiary of the estate Person A took legal action within the two-year period, by sending letters that were not responded too. However, court action was not commenced until after the two-year period finished.

   • the beneficiary Person A allowed the Person D, Person B and Person C to remain in the property, this was not a stipulation of the will and therefore, they did not have a right to occupy the property.

   • after an administrator was appointed, it still took over X months for Person D to leave the property and further court orders had to be issued.

   • once Person D vacated the property it took another X months to until the property could be sold due to extensive water damage, the repairs required and insurance claims approval

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.