Private ruling: Commissioner's discretion relation to inherited dwellings
Date of advice: 22 September 2021
Published: November 2021
Ruling period: 30 June 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: Will the Commissioner exercise his discretion to grant you an extension to the two year period for disposal of the property under subsection 118-195(1) of the Income Tax Assessment Act 1997 ? | A1: No.

Relevant facts and circumstances: The Deceased passed away xx/xx/xxxx The Deceased was an avid collector and some time was required to value, catalogue and sell all the items they stored at their main residence. On xx/xx/xxxx the clearing of the property was completed and keys were handed to the real estate agent to commence listing. Auction occurred on xx/xx/xxxx, and an offer was presented however the offer was well below what you believed was market value and you did not accept it. A global pandemic hit Australia which impacted the ability to hold further auctions and saw a downturn in the market, and some offers were well below the asking price. Negotiations for what you considered to be a fair offer, with the original party who made an offer, was prolonged due to the global pandemic. The property was eventually sold to the original party with settlement occurring xx/xx/xxxx.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-195(1)

Reasons for decision: Summary: If a taxpayer inherits an ownership interest in a dwelling, subsection 118-195(1) of the Income Tax Assessment Act 1997 (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 2 years of the deceased's death, or within a longer period allowed by the Commissioner An extension to the two year period may be granted in certain circumstances. Examples of these circumstances are outlined in Practical Compliance Guideline 2019/5 The Commissioner's discretion to extend the two year period to dispose of dwellings acquired from a deceased estate (PCG 2019/5). | Detailed Reasoning - Application to your situation: In considering whether to extend the two year period in subsection 118-195 (1) of the ITAA 1997, all the factors both in favour and against the granting of the Commissioner's discretion must be considered. It is noted that the deceased was an avid collector/ hoarder which resulted in the property being filled with high and low value items that needed to be evaluated and sold. It is acknowledged that you required some time to clear and auction off the items from the property. However, this is not the only reason for the delay in sale of the property. After the clearing and cleaning of the property was completed, it was listed for auction on xx/xx/xxxx and an offer was presented to you, but was declined as you believed it was below market value. Following this, you continued negotiations with the party who made the offer but these were prolonged due to the global pandemic. The properties were eventually sold to the original party with settlement occurring xx/xx/xxxx. PCG 2019/5 states that circumstances out of your control which delay the sale weigh favourably to the granting of an extension. However, where a significant period of delay is not beyond your control then this is a factor that weighs against the granting of an extension. In your case, initially the property could not be sold until all the deceased's collected items were removed. However, once this was completed, the further delay in the sale was due to you not accepting the initial bid for the property. It is understandable why you would not accept an offer that was below what you believed was the market value. Nevertheless, refusing the offer and instead choosing to enter into negotiations for a higher sale price is not a matter that was beyond your control. PCG 2019/5 indicates that delays due to attempts to achieve a better sale price are circumstances that weigh against the granting of an extension. We have considered all your circumstances but as there was a significant period of delay that was not out of your control, the Commissioner will not exercise the discretion to grant an extension of time.

This ruling applies for the following period: