Private ruling: Commissioner's discretion - deceased estate
Date of advice: 27 November 2024
Published: 13 January 2025
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: 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 for you to dispose of your ownership interest in the dwelling and disregard the capital gain or capital loss you made on the disposal? | A1: No. The reasons you provided for the delay, are insufficient for us to grant the Commissioner's discretion. In particular, we consider the remoteness of the property, and the location of beneficiaries are insufficient reasons for the length of delay in preparing the house for sale.

Relevant facts and circumstances: The deceased passed away on DD MM 20YY. The property is located at XXXX (the property). The property is situated on less than two hectares of land. The deceased acquired the property after 20 September 1985. The property was the main residence of the deceased at the time they passed away, and it was not being used to produce assessable income at that time. The deceased passed away without a will in place. Letters of Administration were granted to the local authority (Local Authority) on DD MM 20YY. Local Authority engaged the services of an organisation to identify any potential beneficiaries of the estate. All potential beneficiaries of the estate were residing overseas, and the deceased had no family within Australia. The search commenced around DD MM 20YY and was completed by DD MM 20YY. From DD MM 20YY to DD MM 20YY, you prepared the property for sale. In the first half of 20YY, you cleaned the property and disposed of its contents. The deceased stored many personal items at the property. The property has not been used to produce assessable income between the date the deceased passed away until the date it was sold. The property was listed on the real estate market on DD MM 20YY. The contract of sale for the property was signed on DD MM 20YY, with settlement occurring on DD MM 20YY.

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 (CGT) 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 after 20 September 1985, that was the deceased's main residence and not used to produce assessable income just before their death, 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 after 20 September 1985. 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 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 carefully considered the following reasons you provided for the delay: • Establishing any potential beneficiaries to the estate. - This issue was resolved by DD MM 20YY, less than XX months after the deceased passed away. • The remote location of the property meant there was limited interest in purchasing the property. - Once the property was listed on the market for sale, it sold within a typical timeframe. • The remote location of the property and the beneficiaries being located overseas impacted efforts to prepare the house for sale. - We note approximately XX months was attributed to difficulties in preparing the remote property for sale. We understand the difficulty in attending the remote location. However, we consider the remoteness of the property, and the location of beneficiaries are insufficient reasons for the length of delay in preparing the house for sale. We consider the reasons you provided are insufficient to the delay in arranging the orderly sale of the property. We provided you the opportunity to provide more information in your timeline of events. You did not provide any detail of events during the period DD MM 20YY to early 20YY. Therefore, we treat this as a period of inactivity and an unfavourable factor. Therefore, the Commissioner cannot apply the discretion under 118-195(1) of the ITAA 1997 to allow an extension to the 2 year time limit. Therefore, the normal CGT rules will apply to the disposal of the property. Please note that the first element of the cost base for the property is its market value on the deceased's date of death. You will also be entitled to the 50% CGT discount in relation to the property.