Edited version of private advice

Authorisation Number: 1052415824252

Date of advice: 01 July 2025

Ruling

Subject: Capital gains tax

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 to dispose of the property and disregard the capital gain made on the disposal?

Answer 1

No.

This ruling applies for the following period:

Year ended 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

The deceased passed away a number of years ago.

The deceased purchased the property with their spouse a few years prior to the date of death.

The property was the deceased's main residence for the whole of the ownership period.

The deceased lived in the property with their child and their child's spouse.

The child and their spouse moved into the property with the deceased when it was purchased to care for the deceased.

The deceased's spouse never lived in the property as they were in a nursing home.

The deceased's spouse passed away shortly after purchasing the property.

The property was never used to derive assessable income prior to the deceased passing or after they passed.

The property was less than 2 hectares in size.

The reasons for the delay in the property being sold within the 2 year legislated time frame is as follows:

When the deceased passed away the deceased's child remained living in the property.

•                     The child's spouse had moved out of the property prior to the deceased passing due to domestic violence.

•                     The deceased's child spoke to a lawyer several years after the date of death regarding the deceased estate but never moved forward with administering the estate.

•                     The deceased's will left their estate to their children, one of the deceased's children passed away a few years ago.

•                     The deceased child had a number of children, and the deceased was estranged from the family.

•                     The deceased's child who had been living with them also passed away.

•                     The child's spouse was the executor for their spouses estate.

The child's spouse was made aware that the deceased estate had not been administered and the property was still in the name of the deceased when their spouse passed away and was attempting to finalise the estate.

The spouse sought legal advice from a solicitor to seek assistance with applying for probate for the deceased.

The spouse had to chase the solicitor up re applying for probate.

Documents were sent for them to sign and send back.

The spouse sends the documents back to solicitors.

The solicitor arranged for a clean-up of the property.

Probate was granted to the spouse on the deceased's estate.

The spouse was not notified by their solicitor that probate had been granted.

The property was transferred into the spouse's name as Administrator.

The spouse hired cleaners to clean the property and remove the contents.

The property was listed for sale.

The property sold at auction and settlement occurred shortly after.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-195

Reasons for decision

The main residence exemption in section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) applies to disregard a capital gain or capital loss a taxpayer makes from a capital gains tax (CGT) event that happens to a dwelling that is their main residence.

If a taxpayer inherits an ownership interest, subsection 118-195(1) of the ITAA 1997 applies so that any capital gain or capital loss they make from a CGT event that happens in relation to a dwelling or their ownership interest in a dwelling is disregarded if:

•                     They are an individual and the interest passed to them as a beneficiary in a deceased estate, or they owned it as the trustee of a deceased estate; and

•                     The deceased acquired the ownership interest 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

•                     Their ownership interest ends within two years of the deceased's death, or within a longer period allowed by the Commissioner.

Where the deceased acquired the property prior to 20 September 1985, the dwelling was from the deceased death until your ownership interest ends the main residence of one of the following:

•                     the spouse of the deceased immediately before their death (but not a spouse who was permanently separated from the deceased)

•                     a person who has a right to occupy the property under the deceased's will

•                     you, as a beneficiary, if you dispose of the property as a beneficiary.

Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example:

•                     The ownership of a dwelling or a will is challenged.

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

•                     A trustee or beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the two-year period (for example, the taxpayer or a family member has a severe illness or injury).

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

Factors that would weigh against the granting of the discretion include:

•                     Waiting for the property market to pick up before selling the dwelling.

•                     Property used to earn assessable income.

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

The above examples are not exhaustive.

In addition, once any circumstances preventing the sale of the Property have been resolved, the Property needs to be placed on the market as soon as possible to enable its disposal.

Application to your circumstances

The delay in selling the property was due to nothing being done by the deceased's child to administer the estate of the deceased.

The deceased's child did seek legal assistance but did not follow through with applying for probate on the estate.

While we acknowledge that once the child's spouse was granted probate the property was sold in a timely manner it still took a number of years for the property to be sold.

A choice was made not to proceed with administering the estate.

None of the above circumstances are out of the executor's control.

In this regard, we consider that the delay was not outside your control.

There were large periods of unexplained inactivity in administering the estate.

It is for the above reasons that you do not meet the requirements for the Commissioner to extend the 2-year time as the property could have been sold at an earlier stage.

The Commissioner will not be exercising his discretion to extend the 2-year period for you to dispose of the Property. Therefore, any capital gain made on the property from the date the deceased passed away until the Property was disposed of will be subject to tax. Australian tax residents are entitled to the 50% CGT discount in relation to the property.