Private ruling: Commissioner's discretion - deceased estate
Date of advice: 6 October 2023
Published: 13 November 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 the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time for you to dispose of your ownership interest in the property and disregard the capital gain or capital loss you made on the disposal? | A1: No.

Relevant facts and circumstances: The deceased passed away on DD MM 20YY. The property is located at XXXX (the property). The deceased acquired the property before 20 September 1985. The property was the main residence of the deceased just before they passed away and was not used to produce assessable income at that time. The property was situated on less than two hectares of land. The parent of the deceased disagreed with the status of the individual who identified as a de-facto spouse of the deceased and indicated their intention (on behalf of the children of the deceased) to dispute the entitlement of this individual to share in the estate. This delayed the application for Letters of Administration until negotiations over the matter were resolved. A Deed of Release was entered into with the Guardian of those children. Letters of Administration were obtained in MM 20YY. An offer for the property was made in MM 20YY, and a draft contract was delivered to the purchasers' solicitors. This sale did not proceed. The property was placed on the market in MM 20YY. The first genuine offer for the property after it was placed on the market was received in MM 20YY. This sale did not proceed. The next genuine offer for the property was received in MM 20YY. This sale proceeded, with settlement occurring on DD MM 20YY. The property was advertised for sale using the following description: Excellent location ... . This is one of the last industrial vacant blocks for sale in this town. Ideal distribution location, with easy access for all vehicles to the Highway. This Block zoned ... General Industrial also has plenty of room for future development and could even be subdivided (subject to Council approval). The block is fully fence with 2 sheds and an office building ready to go. The office has showering, toilet and laundry. The property was not used to produce income at any time after the deceased passed away.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-115 | Income Tax Assessment Act 1997 section 118-195

Reasons for decision: Summary: The Commissioner will not 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 property and disregard the capital gain or capital loss you made on the disposal. | Detailed Reasoning - Detailed reasoning: 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 after 19 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 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 17of 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 as favourable factors: • The parent of the deceased disagreed with the status of the de-facto spouse of the deceased and indicated their intention (of behalf of the children of the deceased) to dispute the entitlement of this individual to share in the estate. This delayed the application for Letters of Administration until negotiations over the matter were resolved. A Deed of Release was entered into with the Guardian of those children. • The parents of the deceased also disagreed with the value of the land, which delayed the marketing of the property. • The property was placed on the market in MM 20YY and was not sold until MM 20YY. We also considered the definition of a dwelling and if it were applicable to the property. ITAA 1997 Section 118-115 defines a dwelling as: • A unit of accommodation that: − is a building or is contained in a building; and − consists wholly or mainly of residential accommodation; and • a unit of accommodation that is a caravan, houseboat or other mobile home; and • any land immediately under the unit of accommodation. A dwelling is anything used wholly or mainly for residential accommodation, such as: • a house or cottage • an apartment or flat • a strata title unit • a unit in a retirement village • a caravan, houseboat or other mobile home. However, it is our position that the property does not meet these definitions, as it appears to be industrial in nature. There is a building on the property which does have facilities (kitchen, bathroom, laundry) contained within, however the floor plan of the building is akin to an office building. There are separate bathrooms for men and women, the listing for the property advertises the property as "industrial land" and the building is referred to as an "office building", and there are no separate living quarters (such as a bedroom) within the building. This is the basis of our conclusion of fact. 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.