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1: Will the Commissioner exercise their discretion to extend the two-year period to dispose of the purchased interest in Property A under subsection 118 195(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

: Yes. In certain circumstances a capital gain or loss from a capital gains tax event that happens in relation to an ownership interest in a dwelling is disregarded under subsection 118-195(1) of the ITAA 1997 if the deceased was an individual and the ownership interest passed to the trustee of a deceased estate. A full exemption is available if the dwelling was a pre-capital gains tax asset in the hands of the deceased, and the trustee of the deceased estate disposed of it with settlement occurring within two years of the deceased's death, or such longer period as the Commissioner allows. In this situation the Deceased acquired their original purchased interest in Property A prior to 20 September 1985 as joint tenant with their spouse, being a pre-capital gains tax asset for the Deceased. The Deceased passed away on Date 1, with settlement on the sale of Property A occurring on Date 2 which was several years after the two-year period following the date the Deceased had passed away.

Having considered the factors and circumstances of the situation being ruled on, and the reasons for the delay in the disposal of Property A after the Deceased passed away, the Commissioner will allow an extension of time. Therefore, any capital gain or loss made in relation to the disposal of the Deceased's original purchased interest in Property A can be disregarded under subsection 118 195(1) of the ITAA 1997. Question 2: Will the Commissioner exercise their discretion to extend the two-year period to dispose of the survivorship interest in Property A under subsection 118-200(3) of the ITAA 1997? Answer: Yes. Where a trustee or beneficiary of a deceased estate cannot access a CGT exemption under section 118-195 of the ITAA 1997, section 118-200 of the ITAA 1997 may provide a partial exemption. Subsection 118-200(3) of the ITAA 1997 ensures that for post-CGT dwellings, where the trustee or beneficiary's ownership interest ends within two years of the deceased's death or for a longer period allowed by the Commissioner, the period between the deceased's death and when their ownership interest ends can be ignored when calculating a capital gain or loss.

In this situation the Deceased acquired their spouse's ownership interest in Property A as the surviving joint tenant after 20 September 1985, being a post-capital gains tax asset for the Deceased. The Deceased lived at Property A for part of their ownership period but was living at another property when they passed away. Therefore, a full exemption is not available under section 118-195 of the ITAA 1997 in relation to this interest in Property A. Having considered the factors and circumstances of the situation being ruled on, and the reasons for the delay in the disposal of Property A after the Deceased passed away, the Commissioner will allow an extension of time under subsection 118-200(3) of the ITAA 1997. Accordingly, a partial exemption under section 118-200 of the ITAA 1997 is available. Any capital gain or loss made on the disposal of the Deceased's survivorship interest in the Property will be apportioned under subsection 118-200(3) of the ITAA 1997 to account for any non-main residence days during the Deceased's ownership period in relation to the total days from when the Deceased acquired this ownership interest until settlement on the sale of the Property occurred.

This ruling applies for the following period : Year ended 30 June 20YY The scheme commenced on: 1 July 20YY

Background The Deceased had a child, Person A, who suffered from depression and anxiety, and who was diagnosed with a medical condition. Several years prior to the Deceased's date of death, an order was made by the Victorian Civil and Administration (VCAT) for Person A to be under financial administration order with Organisation X being appointed to administer Person A's financial affairs under the VCAT order. The Deceased's Will included the following: •   The Deceased's real and personal estate was to be held by trustees on trust, with the power to sell, call in and convert to money or to postpone sale for as long as they think fit. •   The proceeds of sale, calling and conversion to pay for the funeral costs, testamentary expenses and the Deceased's debts, probate, estate duties and the costs of incidentals to the execution of the trusts of the Will. •   The trustees would hold all of his remaining estate (residual estate), both capital and income, as a fund on trust during the lifetime of Person A and apply the income of the fund for Person A's maintenance, support, education or benefit as they saw fit.

•   Where the trustees view that Person A has a reasonable need that could not be met from the income of the fund, they could apply capital of the fund to, or towards meeting that need. •   The trustees may use either income or capital or both, of the fund to pay capital gains tax arising from the disposal of an asset of the fund. •   On the death of Person A, the unspent balance of the fund and its income would revert to the residuary beneficiaries. •   The trustees had the power the whole or any part of the income and capital to a beneficiary, to determine whether receipts comprised of income and/or capital amounts, to use income and/or capital to pay capital gains tax arising from the disposal of an asset and to apportion liability for tax among the beneficiaries or amongst any fund in the Estate, and to spend amounts the trustee's think proper for repairs, alterations or any improvements to any real property part of the estate. The Deceased's estate (the Estate) consisted of financial assets, such as shares, bank accounts, and the following two residential properties: Property A

Prior to 20 September 1985, the Deceased and their spouse (Person B), purchased Property A as joint tenants. The Deceased and Person B resided at Property A after it was purchased with Person A. After 20 September 1985 Person B passed away and their ownership interest in Property A was transferred to the Deceased as the surviving joint tenant. Person A continued to reside at Property A with the Deceased after Person B's passing. The Deceased became ill, spending time hospital, not being able to return to Property A due to its condition in addition to the Deceased not being able to look after themselves. A contract for the purchase of a serviced apartment in a care facility (Property B) for the Deceased was entered into. At that time the Deceased required care due to their old age. Property B was purchased as an alternative for the Deceased going into a nursing home as it was a property situated in a care facility setting yet designed so that the owner still retained their independence. A deposit had also been put on another serviced apartment in the same care facility as Property B for Person A to reside in.

The Deceased moved into Property B after it was purchased, with Person A continuing to reside at Property A as they did not wish to move out. The Deceased's pension was reduced due to Centrelink assessing Property A as an investment property under their asset rules with the Deceased not having sufficient income due to this. The person acting as Enduring Power of Attorney for the Deceased requested that Person A pay a specified rental amount per week in relation to Property A. No formal rental agreement was entered into in relation to the rental arrangement, with Person A commencing paying rent several years after the Deceased had moved to Property B, with the rent continuing to be paid for several years, ending the year after the Deceased had passed away. Property B The Deceased purchased Property B after 20 September 1985 where they moved as soon settlement on it purchase had occurred. The Deceased did not take all of their personal possessions to Property B, only taking those items that they used on a regular basis, such as a bed, clothing and keepsakes, with the rest of their possessions remaining at Property A.

The Deceased spent most of their time at Property B, sleeping there, and parking their car there until it was sold. The Deceased visited Person A at Property A at least once a week until they sold their car. Property B was not used for income producing purposes nor had it been available for rent at any time during the Deceased's ownership period. The Deceased's death certificate listed this property as being their residential address. Activities undertaken after the Deceased passed away Person A continued residing in Property A after the Deceased passed away. Due to their health issues, they were socially isolated and had only resided at Property A throughout their lifetime, with their intellectual disability impacting their ability to complete everyday/basic tasks, such as cleaning and cooking. Person A was unemployed, had no friends and had little interaction with their family, leading a reclusive existence, having little to no social interaction with the community. They did not look after themselves or Property A, which had been in disrepair since prior to the Deceased's death.

Early the following year after the Deceased passed away, Organisation X were advised of the Deceased's passing by the legal firm representing the legal personal representatives of the Deceased's estate (the Estate). During the following month Organisation X advised the legal firm that the Estate was placed on notice as Organisation X intended to make a greater claim on the Deceased's Will on behalf of Person A. As part of this, Organisation X requested that no distributions to any beneficiary was to occur until the challenge had been resolved. During the following month probate of the Estate was granted by the court with Person X and Person Y being appointed as the Executors of the Estate (the Original Executors). Several months later settlement on the sale of Property B by the Original Executors occurred. Organisation X undertook court proceedings between Person A (the plaintiff) and the Original Executors (the defendants) in which a further provision out of the Estate for Person A's maintenance and support was sought.

Organisation X in their capacity as Person A's financial administrator engaged legal counsel representation to seek their advice on the next steps for Organisation X to take in relation to their claim. Upon receiving legal advice, Organisation X obtained a further assessment of Person A's needs, which included organising for a report to be completed by an occupational therapist for Person A. After receiving the report Organisation X progressed their claim on the Estate on behalf of Person A, finalising an affidavit, and lodging the matter with the court less than two years after Date 1. A directions hearing was heard in the court with the matter being referred to judicial mediation. Some months after the claim was lodged with the court, mediation occurred when the terms of settlement (Terms of Settlement) were agreed upon between Organisation X and the Original Executors in which Organisation X's claim was compromised (the Compromise) subject to the approval of the court, by the plaintiff and the defendants agreeing to the following: •   The defendants be discharged as the Original Executors of the Deceased's Will

•   Organisation X would be appointed as administrator and trustee of the Estate in place of the defendants •   The defendants would transfer to Organisation X specified shares held by the Deceased and the Estate funds held in bank accounts •   Organisation X would give consideration to the relocation of the plaintiff to a two-bedroom unit or townhouse in Pascoe Vale or surrounding suburbs. Early the following year, being more than two years after the Deceased had passed away, court orders were issued in relation to the approval of the compromise of Organisation X's claim which included the following information: •   The defendants consented to the Compromise •   The Court was satisfied that the distribution of the Estate in accordance with the Deceased's Will did not make adequate provision for the proper maintenance and support of the plaintiff •   The Court Orders included: -   The defendants, as the Original Executors of the Will of the Deceased were authorised to make the Compromise. -   The defendants were discharged as Executors and Trustees of the Will and Estate of the Deceased.

-   Organisation X was appointed as the Administrator of the Estate in place of the defendants, with the Will annexed; and -   The assets of the Estate were to vest in Organisation X with the defendants to transfer the Deceased's assets and Estate funds held in trust or in bank accounts within a specified period. As part of the Terms of Settlement, Organisation X was to provide consideration in finding suitable accommodation for Person A in the local area so they could move out of Property A, which could then be sold. Organisation X and a Government organisation (Organisation Y), who were responsible for making decisions surrounding Person A's living arrangements, commenced assisting in putting this into effect, however Person A refused to leave Property A. Person A sought legal advice from Company W to have Organisation X's financial administration order revoked as they had not been consulted when the terms of settlement were drafted and disagreed with the decision that they had to vacate Property A. The following occurred during the following years:

•   There was a breakdown in the relationship between Person A and Organisation X which was compounded by the issue of seeking to have them move out of Property A, with Person A becoming abusive and difficult to deal with should anyone from Organisation X attempt to contact them. •   Person A became even more reclusive and cut off contact with Organisation X and other organisations/parties that were trying to assist them with their day‐to‐day needs. •   Company W lodged an application with VCAT on Person A's behalf seeking that Organisation X's revocation of Person A's financial administration and their appointment in that role, with Organisation W being appointed as financial administrator for Person A. •   Company W advised Organisation X that Person A was willing to move to another property and activities were undertaken by Organisation X to find a suitable property for Person A to move into, which would be purchased by the Estate after Property A was sold. However, Organisation X were later advised by Company W that they had been trying to move Person A to another property, however they did not want to move from Property A.

•   Organisation X communicated to Company W and Person A's social worker their intention of seeking orders from the court for Organisation X to take possession of Property A so that it could be sold. If that occurred it the Sheriff would be involved to remove Person A from Property A, which Organisation X did not want to enforce, given Person A's fragile state of mind. A meeting was set up with Organisation X, Company W and Person A's social worker to determine the most appropriate course of action. •   The Estate's returns for the income year the Deceased passed away and the income year in which Property B was sold were lodged, with no capital gains tax amount/s recorded in either return. •   Various organisations/parties were appointed and/or removed in relation to Person A's welfare and living arrangements, such as in the roles guardian and/or financial administrator for Person A, with whom Organisation X collaborated with in relation to Person A and Property A. On occasions lengthy periods occurred in relation to correspondence being received by Organisation X from other organisations/parties in relation to issues relating to Person A and Property A.

•   VCAT conducted a guardianship hearing in relation to the condition of Property A and undertaking repair works and relocating Person A to another property. Several months later a VCAT hearing was conducted to discuss keeping Person A at Property A, with quotes to be provided in relation to repair work at the property to be funded by Person A. •   Company W provided Organisation X with an interim quote for the urgent repairs at Property A, indicating that a full scope of works would not be known until the new year due to Covid 19 restrictions at that time which made it difficult to obtain a tradesperson to access the Property. Additionally, the scope of the works could not be accurately ascertained until after the works had commenced. •   Company W provided a full quote in relation to the Property A works to Organisation X and VCAT, which included information about some works that had been undertaken at Property A. Organisation X sent a letter to all beneficiaries to provide them with an update of the repairs to Property A, seeking their consent to utilise some of the Estate's funds to contribute towards the expense of repairing Property A.

•   All of the residual beneficiaries of the Estate provided Organisation X with their objections to proceed with the repair quote as the quoted works did not address all issues that were required to make Property A habitable for Person A. Quotes for works at Property A were provided as part of their response. •   Organisation X requested another quote for works that would address Person A's needs only. •   Person Z was appointed as Person A's financial administrator more than six years after the Deceased had passed away. •   Organisation X sent an email to the court indicating their intention to apply to the court to alter the Terms of Settlement. •   Person Z and Person A's supportive guardian communicated to Organisation X that Property A was in worse condition than it had previously been in, and they wanted to relocate Person A and sell Property A so that another property could be purchased for Person A in the same area. Person Z provided details of what type of property was being sought to be purchased for Person A. •   Organisation X commenced the sale process in relation to selling Property A.

•   Person Z notified Organisation X details of a suitable property (Property X) that they and Person A's supportive guardian had found. Organisation X notified the sales agent dealing with the sale of Property A, who was liaising with the sales agent for Property X to seek instructions on whether Organisation X's terms of settlement would be agreed to by the vendor of Property X should Organisation X make an offer as the purchase of Property X was contingent on the sale of Property A. It was confirmed that the terms of purchase of Property X were acceptable by the vendor and Organisation X place on offer on Property X which was accepted by the vendor. •   An auction date was set for the sale of Property A, however Person Z had notified Organisation X to end the contract to purchase Property X as Person A had changed their mind about moving to another property, with their behaviour becoming abusive, hostile and irrational.

•   Organisation X made the decision to approach the courts to amend the Terms of Settlement to allow for Property A to be repaired and for Person A to continue to reside there. An email was sent to the Original Executors to formalise an agreement in writing to release Organisation X's obligation to sell Property A, however no response was received from the Original Executors. •   Throughout this time Person A had on occasions refused to engage with Organisation X and/or other parties, answer phone calls or responding to mail, answer the door when visited by various parties, with their mental health progressively worsening. Their behaviour had become abusive, hostile and irrational. •   On Date 3, Person A passed away, being more than five years after the Deceased had passed away. •   Following the passing of Person A activities were undertaken by Organisation X to be sold, which included changing the locks on the house, clearing Property A of the Deceased's and Person As personal effects, undertaking an industrial clean of the property and obtaining a valuation so that a reserve for the sale of Property A could be set.

•   Within a short period after Person A's passing a real estate agent was engaged to sell Property A, with an auction date being set. •   Property A was sold at auction, with settlement on its sale occurring more than ten years after the Deceased had passed away.

Income Tax Assessment Act 1997 section 102-20 Income Tax Assessment Act 1997 section 104-10 Income Tax Assessment Act 1997 section 118-195 Income Tax Assessment Act 1997 section 118-200