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Will the Commissioner exercise the discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time to dispose of the property and disregard the capital gain made on the disposal?

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

The deceased passed away a few years ago. The deceased died intestate. The deceased acquired the property a number of years ago. The property was their main residence for the whole of their ownership period. The property was never used to derive assessable income. The property was less than 2 hectares in size. The property remained vacant from the date of death until it was sold. Letters of Administration were granted to the deceased child. The reasons for the property not selling within the 2 year legislated time is as follows: Shortly after the deceased passed away, the deceased's child engaged lawyers to assist with the administration of the deceased estate. As the deceased died intestate, the family were advised that Letters of Administration would be required-either by all entitled beneficiaries or by one with the consent of the others. The Deceased Death Certificate initially listed only some children. Unknown to most (but known to the deceased's spouse), the deceased had a former spouse and children overseas. Some of those children had predeceased them. As a result, the deceased's children became entitled beneficiaries, and their consents were required.

This discovery necessitated amending the Death Certificate, which required evidence such as the birth certificates and the death certificates. Evidence of the deaths of The Deceased parents were also required. The Supreme Court required birth certificates for some children, in addition to the documents listed above. The deceased child relied on the overseas family to provide these documents. However, they were initially suspicious and slow to respond, despite being entitled to a share of the estate. A couple of years after the deceased had passed away, consent documents were sent to the overseas beneficiaries, explaining that signed consents were needed for the Grant application. These were returned months later after extensive follow-ups and engagement with overseas solicitors. The application to amend the Death Certificate was filed with the Registrar General's Office. As there was a minor involved, a Trustee was required to hold their entitlement until they turned 18. The Public Trustee agreed to act in this role. The Application for Letters of Administration was filed with the Supreme Court. The Grant was issued.

An application to register the deceased's child as proprietor (a prerequisite to being able to sell the property) was filed with Landgate. Landgate approved the application, and a new Certificate of Title was issued. The unit had been vacant for a few years. The works were completed in a few months The Administrator undertook these works personally as a tribute to their late father, who's passing deeply affected him. The improvements were also recommended by the selling agent to present the property in a more appealing condition. The property was placed on the market. A contract was entered into a couple of weeks after putting it on the market. Settlement took place in the month after entering the contract.

Income Tax Assessment Act 1997 section 118-110

The general main residence exemption in section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) applies to disregard a capital gain or capital loss a taxpayer makes from selling their main residence that they own. In relation to a deceased's former main residence, section 118-195 of the ITAA 1997 may provide an exemption where it is disposed of within 2 years of the deceased's death by the trustee of the deceased estate, or a beneficiary of the deceased estate after title to the dwelling is transferred to the beneficiary. The application of the provision varies depending on whether it is sold by the trustee or the beneficiary. In this case the deceased's former main residence was sold by the trustee. Where a trustee of a deceased estate disposes of the deceased's former main residence outside of the 2-year time, the exemption will still apply if an extension of time is granted or during the period from the deceased's death to the date of disposal, the dwelling was the main residence of either: •       the deceased's spouse, or •       an individual who had a right to occupy the dwelling under the deceased's will.

As the deceased died intestate there was no right to reside in the property and the property was not sold within the legislated time. Therefore, the trustee will require the Commissioner to exercise the discretion to allow an extension of time to dispose of the dwelling. The discretion is discussed in Practical Compliance Guideline PCG 2019/5 Capital gains tax and deceased estates -the Commissioner's discretion to extend the 2-year period to dispose of dwellings acquired from a deceased estate. It states that generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example: •       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 2-year period (for example, the taxpayer or a family member has a several illness or injury).

•       Settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control. Factors that would weigh against the granting of the discretion include: •       Waiting for the property market to pick up before selling the dwelling. •       Waiting for refurbishment of the dwelling to improve the sale price. •       The property was used to earn assessable income. •       Unexplained periods of inactivity in attending to the administration of the estate. The above examples are not exhaustive. In addition, once any circumstances preventing the sale of the property have been resolved, the property needs to be placed on the market as soon as possible to enable its disposal. In this case, the major cause of the initial period of the delay was due to the deceased passing away without a valid Will and there were overseas beneficiaries. The deceased had two families one in Australia and the other overseas. Birth certificates and other documents were required to be supplied from overseas. There were delays in obtaining consent documents from the children overseas for Letters of Administration to be granted.

Letters of Administration were granted a couple of years after the deceased had passed away. The Administrator carried out work on the property as advised by the Real Estate Agent and to pay tribute to the deceased. This work took a few months to complete. The Commissioner will not exercise the discretion to extend the 2-year time prescribed in section 118-195 of the ITAA 1997 because the property was not placed on the market as soon as possible after the Letters of Administration had been granted. There were some complexities in administrating the estate but the Administer chose to delay the sale of the property further after the grant of probate. The property was renovated and could have been placed on the Market far sooner than occurred. PCG 2019/5 states that delay caused by the refurbishment of the property is an unfavourable factor in considering whether to allow an extension of time.

It is often the case that a deceased's former main residence is in a poor condition at the time of the deceased's passing and a real estate agent may recommend that some work is done to the property before it is sold. It is understandable that trustees and beneficiaries may undertake work to address the poor condition of a property in order to maximise the return from its sale. However, this does not mean that the resulting delay is unavoidable as a property can be sold 'as is'. That is, the delay is due to a choice to undertake the work. As the Commissioner is not exercising the discretion to extend the 2-year period to dispose of the property, any capital gain made on the property from the date the deceased passed away until the property was disposed of will be subject to tax. However, the 50% CGT discount will apply in relation to the property.