Private ruling: CGT - deceased estate - Commissioner discretion
Date of advice: 1 September 2022
Published: November 2022
Ruling period: Year ended 30 June 20YY
Date scheme commenced: DD MM YYYY

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time to the two-year period to dispose of the inherited property? | A1: Yes

Relevant facts and circumstances: The deceased died on DD MM YYYY and probate was granted on DD MM YYYY. The deceased acquired the property in DD MM YYYY. On DD MM YYYY the deceased's daughter notified the Executor of her intention to make a Testator's Family Maintenance claim. Specifically requesting the property not be sold as she would seek transfer of the property if successful. Formal notice of this claim was served on the Executor on the DD MM YYYY. Mediation was delayed due to uncertainty surrounding COVID-19 and lockdowns. Settlement was reached on DD MM YYYY and the deceased daughter's claim on the property relinquished. Terms of settlement required remediation work on the property. Due to further lockdowns between DD MM YYYY to DD MM YYYY works took longer than expected. The property was listed for sale on DD MM YYYY and was sold on the DD MM YYYY. Settlement took place on DD MM YYYY. The property was the main residence of the deceased at the time of his death and was not used for income producing activities before or since that date.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 118-195

Reasons for decision: Summary: 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: • 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 2 years of the deceased's death. The Commissioner has discretion to extend the two-year time period where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death. This discretion may be exercised in situations such as where: • 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 circumstances outside the beneficiary or trustee's control. These examples are not exhaustive but provide guidance on what factors the Commissioner would consider reasonable to exercise his discretion to extend the two-year period to dispose of an inherited property. Whether the Commissioner will exercise his discretion under subsection 118-195(1) of the ITAA 1997 will depend on the facts of each case. We have taken the facts of your situation into consideration when determining whether the Commissioner's discretion would be exercised to extend the two-year period and allow an extension to the two year period until settlement on the disposal of the dwelling occurred. Therefore, any capital gain made on the disposal of the dwelling can be disregarded.