Private ruling: Commissioner's discretion - deceased estates
Date of advice: 21 December 2022
Published: 20 February 2023
Ruling period: The year ending 30 June YYYY
Date scheme commenced: 1 July 2022

Ruling: Q1: Will the Commissioner allow an extension of time for you to dispose of your ownership interest in the dwelling (the property) and disregard the capital gain or loss you made on disposal? | A1: No. Having considered your circumstances and the relevant factors the Commissioner will allow an extension of time. Further information about the Commissioner's discretion can be found by searching ato.gov.au for 'QC 66057'.

Relevant facts and circumstances: The deceased passed away on 7 October 20XX. The deceased acquired the property before 20 September 1985. The property was the main residence of the deceased throughout their ownership period. The property was situated on less than two hectares of land. As a result of the deceased death and other factors, the executor was impacted by distress and hardship. Two individuals occupied the property at different periods, without the authority to do so under the will. Extensive renovations and repairs were undertaken the property after the deceased passed away. The availability of builders and repairers were impacted by lockdown restrictions imposed in response to the COVID-19 pandemic. The executor received professional advice in March 20XX that they needed to dispose of the property by October 20XX to avoid incurring capital gains tax. The property was listed for sale on 14 September 20XX and settlement occurred on 25 November 20XX.

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. For a dwelling acquired by the deceased before 19 September 1985, you will be entitled to a full exemption if your ownership interest ends within two years of the deceased's death. Your ownership interest ends at the time of settlement of the contract of sale. 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 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'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 a favourable factor, the sensitivity of your personal circumstances due to the hardships you faced after the deceased passed away. We also considered the extensive refurbishments which have been made to the property some of which were to improve the sale price. It is also noted that you allowed two individuals to occupy the property after the deceased passed away without authority to do so under the will and you received professional advice in March 2021 that you needed to dispose of the property by October 2021 to avoid incurring capital gains tax. These factors are not considered to be beyond your control and in our view, contributed to the delay in the disposal of the property. Paragraph 15 of PCG 2019/5 states that factors that would weigh in your favour for allowing a longer period include those listed in paragraph 12 of the Guideline, which includes restrictions on real estate activities imposed by a government authority in response to the COVID-19 pandemic. In your circumstances, the availability of builders and repairers were impacted by the lockdown restrictions imposed in response to the COVID-19 pandemic. We have not considered the delays you faced as favourable as they have not impacted real estate activities such as property viewings or auctions. 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.