Private ruling: CGT - Deceased estates
Date of advice: 23 May 2024
Published: 1 July 2024
Ruling period: Year ended 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: XX September 20XX

Ruling: Q1: Will the Commissioner exercise the discretion under section 118-195 of 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 disregards the capital gain or capital loss you made on the disposal? | A1: No.

Relevant facts and circumstances: The deceased acquired the property as the surviving joint tenant and became the sole owner of the property after 20 September 1985. The property was situated on less than two hectares of land. The property was the main residence of the deceased until the date of deceased's death and was not used to produce assessable income at any time. The deceased passed away on XX 20XX. The deceased's Will appointed you and your sibling to be joint executors and trustees. The probate of the Will was granted on XX 20XX. The real estate agent was contacted and the property first listed for sale on XX 20XX. Several offers had been provided to the executors with different settlement periods, from 12 months to 18 months. The executors selected the offer with the 18 month settlement period. The contract of sale was signed on XX 20XX. The purchaser requested an extension to settle due to financial availability and the settlement occurred on XX 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-195 (1)

Reasons for decision: Summary: 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 as a surviving joint tenant. After the deceased passed away, you owned the property as beneficiary 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 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 consider as favourable factors, Covid-19 issues and the finance availability of the purchaser. We also considered the executors' choice to enter into an 18-month settlement period, with settlement outside the 2-year period, as unfavourable factors. 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. You should note that the first element of your cost base for the property is its market value on the deceased's date of death. You are also entitled to the 50% CGT discount in relation to the property.