Private ruling: Commissioner's discretion - deceased estate
Date of advice: 15 December 2022
Published: 13 February 2023
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion under section 118-195 of ITAA 1997 to allow an extension of time for you to dispose of your ownership interest in the dwelling acquired from a deceased estate and disregard the capital gain or capital loss you made on the disposal? | A1: No.

Relevant facts and circumstances: Taxpayer A's parent (the Deceased) died. As part of their estate, the Deceased left a property (the Property). The Deceased moved into the Property prior to 1985. The land size of the Property is less than two hectares. The Deceased lived in the Property as their main residence until they moved into an aged care facility prior to her death. The Deceased continued to visit the Property intermittently after moving into an aged care facility. You are both beneficiaries of the Property. After the Deceased's death, you occasionally stayed in the Property for convenience's sake, but it was not your main residence at any time. Taxpayer A is the executor of the Deceased's estate. You engaged a legal services firm three weeks after the death of the Deceased to obtain Probate on your behalf. The initial probate application was rejected by the Court as it required affidavits from the original witnesses to the will. Once the witnesses to the Deceased's will had been located, affidavits were eventually obtained. Probate was granted seven months after the original probate application was lodged. Taxpayer B was diagnosed with a medical condition. Taxpayer B received an operation shortly after diagnosis. Taxpayer B attended a therapy planning therapy planning session. Taxpayer B attended daily treatment for a period of 20 days. Conveyance was completed and the property's title was transferred into your names less than 1 year after the date of death of the deceased. A total of 262 days or roughly eight and a half months of government restrictions on travel due to the COVID-19 pandemic occurred between you obtaining probate and listing the house for sale. You have stated that you experienced difficulty in attending to the property and the general uncertainty caused by COVID lockdowns prevented you from attempting to sell the property over this period of time. You also stated that uncertainty about buyers contributed to your decision not to list the property for sale over this period of time. You listed the property for sale on 1 year and 11 months after obtaining probate. The contract for sale was executed on 11 days after the property was listed for sale. Settlement of the property occurred four months after the contract was signed.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-195

Reasons for decision: Summary: 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. In your case, the deceased acquired the property before 19 September 1985. After the deceased passed away, you owned the property as trustee of the estate. 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's discretion 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 will 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 of 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 Commissioner's discretion which includes the sensitivity of your personal circumstances. In your case, we consider the delay in obtaining probate to be a favourable factor as it was outside of your control. We have also considered Taxpayer B's heath issues. However, this occurred concurrently to the probate application process. Furthermore, as Taxpayer B was not named as an executor of the Deceased's estate, there was no requirement for them to be directly involved in the probate application process and therefore this factor will not be considered as a favourable factor. We also considered your contention that government travel restrictions due to the COVID-19 pandemic impaired your ability to attend to the property. However, paragraph 12 of PCG 2019/5 clarifies that we only view government lockdowns in response to the COVID-19 pandemic when they restrict real estate activities, such as open homes or auctions, in relation to a property's sale. In your case, probate was granted eight months after the date of death of the Deceased, yet the property was not listed for sale for a further period of 1 year, 10 months and 18 days. We consider this to be an extended period of unexplained inactivity and while we note that restrictions on travel may present challenges in attending to the property, discretion will not be granted on this basis. In addition, we note that you made the decision not to list the Property for sale during this period due to concerns about the lack of interest from buyers. We consider that this was a factor attributing to the delay in the sale of the property which was within your control. 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.