Private ruling: Commissioner's discretion to extend 2 year period
Date of advice: 31 March 2022
Published: December 2022
Ruling period: Year ended 30 June 20XX.
Date scheme commenced: 1 July 20XX.

Ruling: Q1: Will the Commissioner allow an extension of time for you to dispose of your ownership interest in the dwelling located at 'X' and disregard the capital gain you make on the disposal? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 subdivision 115-A | Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 118-120 | Income Tax Assessment Act 1997 section 118-130 | Income Tax Assessment Act 1997 section 118-195

Reasons for decision: Summary: A capital gain or capital loss may be disregarded under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) where a capital gains tax event happens to a dwelling if it passed to you as a beneficiary of a deceased estate or you owned it as the trustee of the deceased estate. Generally, your ownership interest in the dwelling has to end within two years of the deceased's death for the exemption to apply. Subsection 118-195(1) of the ITAA 1997 confers on the Commissioner the discretion to extend the two-year period 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). PCG 2019/5 states that generally an extension will be granted where there were factors that existed during the initial two-year period that were out of your control which meant that the dwelling could not be sold within that two-year period. The factors that PCG 2019/5 state would be favourable to the exercise of the discretion include: • the ownership of the dwelling, or the will, is challenged • a life or other equitable interest given in the will delays the disposal of the dwelling • the complexity of the deceased estate delays the completion of administration of the estate, or • settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of your control. You have referred to the impact of COVID-19 on your ability to sell the dwelling; however, this impact did not start until March 20XX which was only one month prior to the expiry of the two-year period. Rather it is apparent that the main reason for delay during the initial two-year period was the distance the beneficiaries lived from the dwelling and their substantial work and family commitments. Although we understand that these factors would make it more difficult to attend to the sale of the dwelling, this is not an uncommon situation faced by many executors and beneficiaries and are not factors that the Commissioner can consider as favourable to the exercise of the discretion. Also, in the area that the beneficiaries reside and where the dwelling is located, travel restrictions were lifted from 1 June 20XX so only impacted the sale of the dwelling for less than three months. None of the factors that would normally justify an extension of the time period are present in your case. Having considered the relevant facts and the guidelines for the exercise of the discretion that are set out in PCG 2019/5, the Commissioner will not apply his discretion under subsection 118-195(1) of the ITAA 1997 to allow an extension to the two-year time limit. Consequently, 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. That is, the first element of the cost base for the property is its market value on the deceased's date of death. You are also entitled to the 50% CGT discount in relation to the property.

The deceased acquired a dwelling (the dwelling). | The deceased passed away in 20XX (the deceased). | The dwelling was the deceased's main residence and was located on land less than 2 hectares in size. | The dwelling was not used to produce assessable income prior to the deceased's death. | The deceased's adult children were all named as joint executors. | The joint executors were all the beneficiaries of the estate. | Title to the dwelling was transferred to the beneficiaries. | The beneficiaries reside a significant distance from the dwelling which made preparing the dwelling for sale more difficult. | All the beneficiaries had substantial work and family commitments. | The dwelling required some ongoing repairs and removal of personal effects. | A real estate agent was engaged however due to the slow down in the market and the difficulties in having open houses the dwelling took longer to sell than anticipated. | One of the beneficiaries also investigated the possibility of acquiring the other beneficiaries interests; however, after consideration this plan did not proceed. This caused some delays to the sale of the dwelling. | Settlement occurred in 20XX.