If you sell a family home that was the deceased person's main residence and not being used to produce assessable income just before they died, or was acquired before 20 September 1985, and it was passed to you as a beneficiary or as the trustee of the deceased's estate within two years of the deceased's death, then any capital gain or loss you make on the subsequent disposal is disregarded. In some circumstances, the Commissioner has discretion to extend the two year period.
Circumstances that warrant extension of the 2 year period
The Australian Taxation Office issued Practical Compliance Guideline PCG 2019/5 ("PCG") on 27 June 2019 that provides a "safe harbour" compliance approach if an individual taxpayer's circumstances comply with the conditions listed in the PCG.
One or more of the following circumstances must have taken more than 12 months to resolve:-
- A challenge to ownership of the dwelling or the Will (of the deceased);
- A delay in the Disposal of the dwelling due to a life or other equitable interest in the Will;
- The complexity of the deceased estate delaying the completion of the administration of the estate;
- Settlement of the contract for sale of the dwelling is delayed or falls through for reasons outside of the control of the executor.
How to qualify for the safe harbour?
To qualify for the safe harbour, all of the following conditions must be met:-
- During the first 2 years of the death of the deceased, more than 12 months must have been spent addressing any of the above circumstances;
- The dwelling was listed for sale as soon as practically possible after those circumstances were resolved ( and the sale was actively managed to completion);
- The sale of the property is completed within 12 months of the dwelling being listed for sale;
- None of the circumstances listed in the PCG were material to delays in the disposal of the property (namely, delays due to refurbishment for increased price, waiting for the market to improve ,inconvenience by trustee or beneficiary to organise the sale of the property; and unexplained periods of inactivity by the executor in attending to the administration of the estate); and
- The longer time frame required for the exercise of the Commissioner's discretion would not exceed 18 months.
It is often the case that in the administration of an estate by the executor, the 2 year period has been slightly exceeded, and the executor needs to apply to the ATO pursuant to section 118.195 of the Income Tax Assessment Act, 1997 (Cth) for the Commissioner to exercise his discretion and extend the 2 year period.
This PCG can be relied upon in such circumstances, without the need to apply for the Commissioner's discretion, in the finalisation of the estate, provided the circumstances of the particular case meets all the safe harbour criteria.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.