Private ruling: Commissioner's discretion to allow an extension to the two-year time limit
Date of advice: 6 September 2023
Published: 16 October 2023
Date scheme commenced: XX XXX 20XX

Ruling: Q1: Will the Commissioner exercise the discretion under section 118-195 of the Income Tax Assessment Act 1997 to allow an extension of time for the Administrator to dispose of the ownership interest in the dwelling owned as trustee of the deceased estate and disregard the capital gain or capital loss made on the disposal? | A1: No. This private ruling applies for the following period: XX XXX 20XX The scheme commenced on: XX XXX 20XX

Relevant facts and circumstances: The Deceased owned the Property. The Property was The Deceased's main residence at the time of death. The dwelling is on land of less than 2 hectares. The Property was acquired prior to 20 September 1985. You parent entered a nursing home on XX XXXX 20XX. The Property was rented from XX XXXX 20XX through a real estate agent. The rental income helped to pay for the nursing home and upkeep of the Property. The Deceased died on XX XXXX 20XX. After the Deceased died, the Property continued to be rented. The rental income was deposited into their account and helped pay for the continued upkeep of the Estate. The Property stopped being rented in XXXX 20XX. The Deceased left a Will dated XX XXXX 20XX. Probate was granted on XX XXXX 20XX. The Property was valued for probate purposes at $X. Title to the Property was granted to relatives of the Deceased as the Executors on XX XXXX 20XX. Relatives of the Deceased each inherited a share of the Property. You started enquiries with real estate agents in XXXX 20XX for the sale of the property. You were advised that, due to its size it would only appeal to developers. On XX XXXX 20XX, Real Estate Agent A advised you that the market had fallen and that the Property was valued at $X to developers. They offered to list the property for sale. You did not take up this offer since you felt a better price would be obtained in the following year. Approaches to several agents resulted in little interest and in early 20XX Covid became an issue and resulted in the commencement of restrictions and lockdowns which reduced your ability to have the property listed as well as reducing the ability of real estate agents to carry on business and deal with clients. You are aged XX and your relative is aged XX. As seniors with susceptible underlying health conditions and had little contact with the wider community. The Property is located in a lockdown region to which travelling was not allowed from XX XXXX 20XX and throughout the first months of 20XX with additional restrictions applied in XXXX 20XX. During this time, you could not meet with local real estate agents. In order to travel to the Property to do maintenance had to consult with a government agency to gain permission to travel under a 'property maintenance' clause. At the beginning of 20XX, enquires were begun and an offer to list the property from Real Estate Agent B in January 20XX indicated a sale price of $X. There was considerable delay in the sale and settlement of the property due to the downward slope of the property and resulting negotiations of stormwater easement. This was apparent from the due diligence process which would also include an investigation of service placements e.g. drains, electricity supply. When Covid restrictions were finally eased by XXXX 20XX, contact was made with a local Real Estate Agent C, who had a buyer with an attractive offer of $X. This buyer's offer was the first and only one received. An exchange of contract was made on XX XXXX 20XX with a 12-month settlement period. The purchaser has since requested extensions of final settlement. It is hoped that on XX XXXX 20XX full settlement will finally be made, X years after the contract was signed. Although the settlement of the property is taking a lot longer than normal, it was considered better to remain with the contracted purchaser as they have already paid part of the purchase price and it would be too much trouble, time and expense to take legal action to rescind the contract and then re-list the property for sale again. As this buyer's offer was the only one received, you wanted to sell the property as soon as possible after the lifting of Covid restrictions allowed them to enter the sale process. The delay in selling was due to Covid restrictions combined with slowness of the market and the nature of the property, not due to any actions of the sellers.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-195

Reasons for decision: Summary: We acknowledge that Covid restrictions did have an impact. However, in this regard, there was no indication that the executors attempted to list the property for viewing or sale during the lockdowns. As there was a significant period of delay in disposing of the property that was not outside of the control of the executors, the Commissioner will not exercise the discretion to extend the two-year period to dispose of the property. | Detailed Reasoning - Detailed reasoning: In certain circumstances, section 118-195 of the ITAA 1997 provides that the trustee of a deceased estate may disregard an assessable gain or loss made from the disposal of a property that passed to them in their capacity as trustee of a deceased estate if: In certain circumstances, section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) provided that the trustee of a deceased estate may disregard a capital gain or loss made from the disposal of a property that passed to them in their capacity as trustee of a deceased estate if: • The property was acquired by the deceased before 20 September 1985; or the property was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income; and • Your ownership interest ends within two years of the deceased's death. Practical compliance Guidelines PCG 2019/5 the Commissioners discretion to extend the two-year period to dispose of the dwellings acquired from a deceased estate provides guidance on factors we consider when deciding whether to grant the discretion. Paragraph 3 of the 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. The factors the Commissioner will consider to be favourable are listed in paragraph 12 of the PCG as follows: • 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 the administration of the estate; • Settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of your control; or • Restrictions on real estate activities imposed by a government authority in response to the COVID-19 pandemic. | Detailed Reasoning - Application to your situation: In this case the Commissioner has decided not to exercise his power to extend the two-year period. We have taken the following into consideration when making our decision: • On XX XXXX 20XX, Real Estate Agent A advised you that the market had fallen and that the Property was valued at $X to developers. They offered to list the property for sale. You did not take up this offer since you felt a better price would be obtained in the following year. This was a choice on your part to wait for a more favourable offer in 20XX. • From XXXX 20XX until XXXX 20XX when Covid became an issue, 12 months passed. You state that approaches were made to several real estate agents but which resulted in little interest. Covid reduced your ability to have the property listed as well as reducing the ability of real estate agents to carry on business and deal with clients. Few details are provided about what agents approached and what sale prices they suggested. It is acknowledged that you are aged XX and your relative is aged XX. As seniors with susceptible underlying health conditions and had little contact with the wider community. However, the lockdown periods do not account for the whole of this period, that is, there were period when lockdowns were lifted and movement was possible. • From XX XXXX 20XX, when lockdowns commenced in in the Property's location which restricted travel into the first months of 20XX with additional restrictions applied in XXXX 20XX, you could not meet with local real estate agents. Lockdowns restricted travel but do not account for all of this XX-month period. There were periods when travel was possible and discussions with agents did not always require fact-to-face meetings. No details are offered as the maintenance work on the Property. • XXXX 20XX Real Estate Agent B indicated a sale price of $X. Further considerable delays resulting due to the downward slope of the property and resulting negotiations of stormwater easement. At this time, a due diligence process which also included an investigation of service placements e.g. drains, electricity supply. You chose to have this process carried out, so the delays caused by any due diligence was within your control. No explanation is offered as to why this took so long or why his could not have been conducted earlier. • When Covid restrictions were eased by XXXX 20XX, contact was made with Real Estate Agent C, who had a buyer with an attractive offer of $X which you accepted. Further delays were caused by the buyer. Part payments have been made with full settlement expected on XX XXXX 20XX. There was a three-year gap between date of death of the Deceased and the sale of the property with an exchange of contract on XX XXXX 20XX. Then another year's delay until to the initial settlement date of XX XXXX 20XX and a second year's delay until the final settlement date of XX XXXX 20XX. A total of five years from the date of death. During this time, there where were periods of inactivity where it appears you did not actively attend to the property, in particular: • You made little or no attempt to list the property for viewing or sale during the Covid restrictions. • Your decision not to accept the offer to list the property in 20XX as you felt a better price would be obtained in 20XX. There were further delays in listing the property for sale until September 20XX, when you obtained an acceptable sale price. This was your choice and not outside of your control, resulting in a settlement date well outside the 2-year limit. Also, considering that there were no major repairs or renovations done to the property, the lengthy delays appear to be unexplained. Based on the information provided, the Commissioner will not exercise his discretion to extend the 2-year period.