Private ruling: CGT - property
Date of advice: 18 August 2022
Published: November 2022
Ruling period: Year ending 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 (the "dwelling") located at XX and disregard the capital gain or loss you made on the disposal? | A1: No.

Relevant facts and circumstances: In XX the deceased purchased the dwelling which stands on less than 2 hectares. The deceased passed away in XX. The dwelling had been the main residence of both your parents from the date of purchase of the dwelling in 1965 up until their passing. Executors under the probate and the beneficiaries of the Will are children of the deceased. In XX your family experienced a personal loss which resulted in plans for sale of the property to be put aside until the beginning of the following year. Probate was granted on XX. In 20XX, you discovered that access to the property was hindered on one side and difficult to navigate on the other side. To realise the full potential of the block you approached Company A on XX to obtain a formal granting of the use of the side of the property that was hindered and paid them consideration of $XX. Sale of the dwelling was about to go ahead notwithstanding that you had knowledge that prospective buyers indicated they would either want to renovate or demolish the dwelling in order to rebuild. On XX, Person A claimed a legal interest and blocked your attempts to register use of the hindered side of the property. You made numerous requests to Company A to provide information to you about where the matter stood, however Company A did not respond in a timely manner. You had an Agency Agreement with a real estate agent in XX for the sale of the property, but this was cancelled due to the legal challenges regarding the right to gain ready access to the hindered side of the property. The real estate agent advised at the time that unless you were granted ease of access it would be very difficult to sell and unattractive to buyers. A garage was located at the back of the property which required access on both sides for larger vehicles, however, Person A erected a fence on the carriageway that affected access to the garage. Your solicitors advised you to consider lodging a complaint with Company B due to inaction of Company A in resolving the issue. You received a letter the following year from Company A advising that you had been granted access to the hindered side of the property. You listed the property as soon as practicable and advertising began a few weeks later. Throughout most of that year COVID issues resulted in enduring months of lockdowns and hardships. Later that year a Sales Advice was issued to a proposed purchaser - the purchaser had difficulty with finance resulting in the purchase not taking place. A Further Sales Advice was issued by your real estate agent shortly after and the property was sold with contracts for sale exchanged. Settlement of the property occurred on XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 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 (CGT) event happens to a dwelling if it passed to you as an individual and a beneficiary of a deceased estate or you owned it as the trustee of the deceased estate. For a dwelling acquired by the deceased prior to 20 September 1985, you will be entitled to a full exemption if: • the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of the following individuals: - the spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased) - an individual who had a right to occupy the dwelling under the deceased's will, or - an individual beneficiary to whom the ownership interest passed and the CGT event was brought about by that person, or • your ownership interest ends within two years of the deceased's death. In your case, when the deceased died, the dwelling passed to you and your siblings. The dwelling was purchased prior to 20 September 1985 and was the deceased's main residence prior to their death. At that time, it was not being used to produce assessable income. The dwelling was not the main residence of one or more individuals listed above under dot point 1, therefore this basis of exemption is not available. Furthermore, you and your siblings' ownership interests did not end within two years of the deceased's death. The dwelling sale settled more than two years after the deceased's death, therefore, the alternative basis of exemption is also not satisfied. However, subsection 118-195(1) of the ITAA 1997confers on the Commissioner discretion to extend the two-year exemption period. The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion: • the ownership of a dwelling or a will is challenged • the complexity of a deceased estate delays the completion of administration of the estate • a trustee or beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the two-year period (for example: the taxpayer or a family member has a severe illness or injury), or • settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for reasons outside the beneficiary or trustee's control. The delay in disposing of the dwelling was due to you choosing to formally seek use of the carriageway located at the property. Use of the carriageway was not granted until XX. The dwelling was then listed with a real estate agent on XX. In determining whether or not to grant an extension, the Commissioner is expected to consider the circumstances that cannot be material to delays in disposal. The significant delay in disposing of the dwelling was so you could realise the full potential of the block when it became known that a hindrance to carriageway existed near the dwelling. Further delays in sale of the dwelling ensued which occurred X years after the death of the deceased, not within the first two years. The existence of a hindrance to access of the property is not considered to be a sufficient legal impediment that either prevented or hindered the Executors from putting the dwelling on the market. Having considered the relevant facts, the Commissioner will not apply his discretion under subsection 118-195(1) of the ITAA 1997.