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1 Will the Commissioner allow an extension of time for you to dispose of your ownership interest in the dwelling and disregard the capital gain or loss you made on the disposal?

1 No. This ruling applies for the following period : Year ended 30 June 20XX The scheme commenced on: 1 July 20XX

The property at XX XXX XX XXX XX was purchased by the deceased and their spouse as joint tenants on DD MM 19YY. The property is less than 2 hectares. The spouse passed away on DD MM 20YY. On DD MM 20YY, the title was transferred to the deceased as the surviving joint tenant. In MM 20YY the council identified the property for future open space acquisition and proposed to rezone the property to RE1 Public Recreation - Local Open Space. On DD MM 20YY the deceased received notification from council the property would be acquired for local open space. On DD and DD MM 20YY council held a meeting of the Local Planning Panel (LPP) regarding the outcome of the public exhibition and local environmental plan. Item 133 of the agenda states: "When acquisition is required, negotiation between Council and the property owner will be conducted in accordance with the XXX XXX Act 19YY. Furthermore, owners of residential property that have been rezoned and designated for future acquisition may approach council at any time and request Council to purchase the property. Item 131 of the agenda regarding funding for acquisition of land notes that a typical development plan life is 10 to 20 years.

The deceased passed away on DD MM 20YY. On DD MM 20YY an intention to apply for probate was lodged. On DD MM 20YY the executor obtained a property valuation report. The property was valued at $X,XXX,XXX. The deceased's will appoints their spouse executor. On DD MM 20YY the property was rezoned to 'open space'. On DD MM 20YY probate was granted to the substituted executor under the will as the executor had predeceased the deceased. It was noted that the Supreme Court was experiencing delays in the processing of pending uncontested probate applications. On DD MM 20YY council made an offer to the estate to purchase the property by private treaty for $X,XXX,XXX based on a council valuation of the property and an additional amount as reimbursement for legal and other costs plus a further amount equal to the stamp duty for purchase of a replacement property. On DD MM 20YY, the council confirmed be email to the estate's legal representation that it is not contemplating acquiring the property by compulsory process.

On DD MM 20YY council provided a revised offer for the property based on a market valuation of $X,XXX,XXX with additional amounts to reimburse reasonable legal and other costs incurred by the estate, and further funds equal to the stamp duty amount payable on the purchase of a replacement property of equal value. On DD MM 20YY legal representation for the executor obtained a valuation that appraised the property value at $X,XXX,XXX. On DD MM 20YY the estate lodged a claim for compensation for the amount of $X,XXX,XXX.XX regarding council acquisition of the property that included a market value of the property of $X,XXX,XXX and a claim of compensation for disturbances and disadvantage of $XXX,XXX.XX On DD MM 20YY council responded to the counter claim advising the land could not be developed for dual occupancy and as such was not a valid basis for the estate's valuation. Council also advised their review of the compensation claims and those that do not apply under the XXX XXX Act 19YY.

Between DD MM 20YY and DD MM 20YY council and legal representation for the estate agreed to hold a valuers' conference regarding determination of market value of the property and exchanged emails requesting each party provide sales evidence and valuation prior to the meeting. On DD MM 20YY legal representation for the executor obtained a second valuation that appraised the property value at $X,XXX,XXX. On DD MM 202YY council made an updated offer to the estate based on an updated valuation and an additional amount for some items as disturbance costs. The market value offer for the property was $X,XXX,XXX, and that no stamp duty or disadvantage amount was available due to the property being a deceased estate. On DD MM 20YY legal representation for the estate rejected the council offer citing sales of similar properties in the area and reiterated a request a valuers' conference. On DD MM 20YY a valuers' conference was held.

On DD MM 20YY council made an offer based on market value of the property of $X,XXX,XXX, disbursement costs to the value of $XXX,XXX.XX (including an amount of $XX,XXX stamp duty for purchase of another property and an additional amount of $X,XXX for a building and pest report and accounting advice). On DD MM 20YY council meeting minutes recorded the decision to purchase the property. On DD MM 20YY the property title was transferred to the executor of the estate. A contract of sale was signed on DD MM 20YY with settlement occurring on DD MM 20YY.

Income Tax Assessment Act 1997 subsection 118-195

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. Section 118-195 of the ITAA 1997 provides a capital gains tax (CGT) exemption to beneficiaries and trustees where a CGT event happened to a dwelling they acquired from a deceased estate if: •                     the property was acquired by the deceased before 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 with two years of the deceased's death or within a longer period allowed by the Commissioner, or •                     the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of: -                    the spouse of the deceased immediately before death, or -                    an individual who had a right to occupy the dwelling under the deceased's will; or

-                    the individual to whom the ownership interest is transferred as a beneficiary and is then sold by that individual. After the deceased passed away, you owned the property as trustee 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 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 2-year period to dispose of dwellings acquired from a deceased estate (PCG 2019/5) outlines the factors that the Commissioner will consider when determining whether or not to exercise the discretion to extend the two-year period under section 118-195 of the ITAA 1997. Generally, the Commissioner will allow a longer period where the sale of the dwelling was delayed due to reasons beyond your control. The executor or trustee of the deceased estate must satisfy 5 conditions to qualify for the safe harbour.

The first condition is that, during the initial 2-year period after the deceased's death, over 12 months are spent addressing one or more of the following circumstances: •                     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; •                     administration of the estate is delayed due to the complexity of the deceased estate; •                     settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of the trustee's/beneficiary's control; •                     restrictions on real estate activities imposed by a government authority in response to the COVID-19 pandemic. The second condition is that the dwelling must be listed for sale as soon as practically possible after those circumstances are resolved. Three, the sale must be settled within 12 months of the listing. Four, the following factors are immaterial to the delay in disposing of the dwelling and would weigh against the Commissioner allowing a longer period:

•                     waiting for the property market to pick up before selling the dwelling; •                     delay due to refurbishment of the house to improve the sale price; •                     inconvenience on the part of the trustee or beneficiary to organise the sale of the house, or •                     unexplained periods of inactivity by the executor in attending to the administration of the estate. The final condition requires that there be no more than an 18-month extension to the 2-year period for disposal. In the event that the safe harbour conditions are not met, the PCG also outlines factors that the ATO may consider when weighing up whether or not to exercise the Commissioner's discretion: •                     the sensitivity of the trustee's/beneficiary's personal circumstances and/or of other surviving relatives of the deceased; •                     the degree of difficulty locating all beneficiaries required to prove the will; •                     any period the dwelling was used to produce assessable income, and •                     the length of time the trustee/beneficiary held ownership interest in the dwelling.

Paragraph 14 of PCG 2019/5 explains we weigh up all of the factors (both favourable and adverse). In your case, we consider as favourable factors that the property was not used for income producing purposes. We also considered: •                     there was no challenge to the ownership of the property or to the deceased's will; •                     there was no life interest in the deceased's will that caused a delay in the disposal of the dwelling; •                     there were no factors from the time of the deceased's death that explain the executors' inability to attend to disposing of the property. •                     there was no delay in settlement of the contract of sale over the property.

The Commissioner must consider the reasons for the delay starting in the first two years. In this case application for probate was lodged six months after the death of the deceased. There was a further delay in grant of probate of approximately ten months due to a backlog from an increase in the volume of probate applications with the Supreme Court. However, there were no complexities regarding the deceased estate. There were no extenuating circumstances that are considered complex that prevented the estate being administered in that, there were no challenges to the executor and they accepted their role to administer the estate. The council adopted the plan for re-zoning in MM 20YY, which was prior to the deceased's death. Under the plan the property was identified for public recreation. The report of the council local planning panel from MM 20YY noted the plan has a life of ten years or longer. In MM 20YY the council advised they had no plan for compulsory acquisition of the dwelling and had advised the council could be approached at any time to request the council purchase the property.

Although the property had been identified for future open space acquisition this does not mean that the delay in selling the property was beyond your control. If the proposed acquisition and re-zoning meant that it was impossible to sell the property on the open market, then a failure to sell would be beyond your control. In this case, there was no attempt by the executor to sell the property prior to acquisition by the council. The delay was due to your choice to wait for the council to acquire the property at what you considered to be market value for the sale of the dwelling and was not due to an inability to attend to disposing of the property. Although it is understandable why you made this decision, nevertheless, it was a choice and therefore not a matter that was beyond your control. A valuation of the property was completed in MM 20YY that valued the property at $X,XXX,XXX. Within 12 months of the valuation, the council made an offer to purchase the property by private treaty at an amount approaching the valuation, and to provide additional compensation amounts. The offer from the council was again provided and increased some twelve months later.

The Commissioner acknowledges the dwelling is located in an area subject to a development plan and could be compulsorily acquired in the future which may influence the ability to sell the dwelling for what you considered to be market value. However, it is the Commissioner's view that this did not prevent you from attempting to sell the dwelling and you instead chose not to attempt the sale earlier. You formed the view that the dwelling would not sell on the open market for what you considered to be market value There were periods of inactivity where it appears the executor did not actively take steps to attend to progressing the sale of the property, for example, the period between the MM 20YY council offer and the MM 20YY revised council offer. Considering there were no major repairs or renovations done to the property, the lengthy delay is unsupported. The timeframe is significantly greater than the two year period you had to dispose of the dwelling and not be liable for a capital gain or loss on the disposal.

The lengthy timeframe for council acquisition of the dwelling was clearly known within the early stages of you acquiring your ownership interest in the dwelling. Despite the excessive timeframe for compulsory acquisition, this was still the major focus when attempting to dispose of the dwelling. It is apparent that the effort to achieve what you considered to be market value through acquisition of the dwelling by the council delayed disposal of the dwelling. As outlined in PCG 2019/5, waiting for the property market to pick up before selling the dwelling weighs against the Commissioner allowing a longer period. Whilst you were not waiting for the overall property market to pick up, you were waiting for the council to acquire the dwelling in order to achieve a higher sale price. This goes against the intent of the PCG that an extension should not be allowed where the delay was due to efforts to achieve a higher sale price for the dwelling.

The information provided in your application does not provide the delay in selling the property was caused by any of the circumstances described as favourable factors as outlined in paragraph 12 of PCG 2019/5, for example, legal challenges to the ownership of the dwelling or challenges to the will. The Commissioner's discretion is limited to situations where it was not possible for the trustee or beneficiaries to sell the property before the time it was actually sold. The intention of the two-year period is to allow the orderly and timely sale of deceased estate property. Although there will be circumstances in which it is understandable why the trustee or beneficiaries may decide to retain the property rather than selling it, this remains a choice and in these circumstances an extension of time will not be granted.

Therefore, having considered the relevant facts, the Commissioner will not apply the discretion under section 118-195 of the ITAA 1997 to allow an extension to the two-year time limit for the reasons outlined above. The normal 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.