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1 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 for you to dispose of your ownership interest in Properties 1-4 and disregard the capital gain or capital loss you made on the disposal?

1 No. Question 2 Will the Commissioner exercise the discretion under section 118-195 of ITAA 1997 to allow an extension of time for you to dispose of your ownership interest in the dwelling (Property 5) and disregard the capital gain or capital loss you made on the disposal? Answer 2 Yes. This ruling applies for the following periods : Year ended 30 June 20XX Year ended 30 June 20XX Year ended 30 June 20XX Year ended 30 June 20XX The scheme commenced on: 1 July 20XX

On XXX the Deceased purchased pre-20 September 1985, Lots which you advised were in the Deceased's name only. Each of these Lots were more than 2 hectares. You confirmed the following: •                Properties 1 to 4 were vacant Lots •                Property 5 had a dwelling on it and was leased. On XXX the Deceased passed away. On XXX the grant of probate of the Will was obtained in the Supreme Court. The Deceased had XXX children. Two of the Deceased's children were appointed as executors of The Estate. However, one of them (Child 2) resigned as executor on XXX. The Deceased's children, along with other family members were beneficiaries of the Will and were entitled to receive distributions from the Estate. On XXX all properties under the Will were transferred into the remaining executor's name (Child 1) as executor under instrument No. XXX. The solicitor acting for the estate ascertained the net worth of the Estate as of XXX to be about $XXX However, the value assessed didn't include the mortgage taken out by the Deceased in XXX. After allowing for this mortgage, this would have left the Estate with little to no funds.

On XXX one of the Deceased's children (Child 3) lodged a family provision application against the Estate seeking provision of more than more than the assets in the Estate (after allowing for the mortgage). The lodgement of the Family Provision Application meant the Estate could not progress until the application was resolved. On XXX the solicitors for the Estate stopped acting for the Estate as the Estate had insufficient funds to pay their fees. Child 2 was working through this period and had to work around their work commitments to address any issues by themselves; lack of funds to pay solicitors; mortgages on the Lots and the legal challenges to the Estate were outside of their control and delayed the process for years. In addition, stress from the Estate matters impacted Child 1's health as noted in a letter issued by their doctor on XXX however, you advised that did not stop Child 1 from executing their duties as the executor. Mediation was first attempted in XXX. There was no resolve at this time. In 20XX the parties successfully resolved their dispute through mediation and Child 3 agreed to drop their family provision claim.

All Lots were sold as soon as legally possible, debts paid and the Will executed. Property 1 sold XXX Property 2 sold XXX Property 3 sold XXX Property 4 sold XXX Property 5 sold XXX by the mortgagee.

Income Tax Assessment Act 1997 section 118-195

Question 1 Will the Commissioner exercise the discretion under section 118-195 of ITAA 1997 to allow an extension of time for you to dispose of your ownership interest in Properties 1-4 and disregard the capital gain or capital loss you made on the disposal? Summary The legislation and ATO guidance make it clear: the Commissioner cannot extend the 2-year discretion under section 118-195 for vacant land, because the provision applies only to dwellings. If the property is vacant land at the time of death, the CGT exemption and the extension discretion do not apply. Detailed reasoning A capital gain or capital loss may be disregarded where a capital gains tax (CGT) 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 before 19 September 1985, 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.

The property was sold more than two years after the deceased's death. Therefore, you require the Commissioner's discretion under section 118-195 of the ITAA 1997 to extend the two-year period to be eligible for an exemption. In your case, the Deceased acquired their ownership interest in Properties 1-4 before 19 September 1985. However, there was no dwelling on any of those properties at the time the Deceased passed. As the properties were vacant land at the time the Deceased passed and due to there being a requirement for a dwelling to exist on the land, 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. The normal CGT rules will apply to the disposal of the properties. You should note that the first element of your cost base for the properties is their market value on the deceased's date of death. Question 2 Will the Commissioner exercise the discretion under section 118-195 of ITAA 1997 to allow an extension of time for you to dispose of your ownership interest in the dwelling (Property 5) and disregard the capital gain or capital loss you made on the disposal? Summary

Having considered your circumstances and the relevant factors the Commissioner will allow an extension of time. However, as the property is larger than 2 hectares, only 2 hectares can be exempt. Detailed reasoning 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 their 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. 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. Commissioner's discretion 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. According to the PCG, one of the factors that would weigh in favour of the Commissioner allowing a longer period is: the ownership of the dwelling, or the Will, is challenged

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. We also acknowledge the executor's personal circumstances, however; they continued in their capacity as executor to administer the estate. In your case, we considered the following as favourable factors: •                the executor engaged with a solicitor promptly and who one month after probate was granted ascertained the net worth of the Estate in order to progress the administration of the estate •                the lodgement of the Family Provision Application which stopped the progress of administration of the Estate •                the mediation attempts •                the mortgagee sale of Property 5 on XXX.

Having considered the relevant facts, we will apply the discretion under subsection 118- 195(1) of the ITAA 1997 to allow an extension to the two-year time limit. However, the main residence exemption from CGT only applies for up to 2 hectares of the land the home is on. The ATO's Taxation Determination TD 1999/67 confirms that: If the land exceeds 2 hectares, the capital gain/loss on the remainder must be calculated by apportioning the cost base and proceeds. The excess land is subject to CGT, even if the property was acquired pre-CGT. The remaining land is assessed for CGT based on its market value at the date of death. You are also entitled to the 50% CGT discount in relation to the remaining land.