This article explores the implications of the Australian Taxation Office’s Practical Compliance Guidelines PCG 2019/5 (Guidelines) which establishes guidelines for the Commissioner of Taxation to extend the two year period for further period of up to 18 months in which a capital gain or loss may be disregard when a disposing of a dwelling acquired by the executor or beneficiary from a deceased estate.
The Income Tax Assessment Act 1997
Under the Act [1] capital gains and capital losses made from certain capital gains tax (CGT) events that happen in relation to a dwelling that was a deceased person’s main residence and not being used to produce assessable income just before they died, or was acquired by the deceased before 20 September 1985 are disregarded for tax purposes in certain circumstances.
Under section 118.195(1) of the Act [2] if you dispose of an ownership interest in a dwelling that passed to you as an individual beneficiary or as the trustee of the deceased’s estate within two years of the deceased’s death, any capital gain or loss you make on the disposal is disregarded.
The Guidelines
Under the Guidelines the Commissioner has the discretion to extend the two year period for a further period of up to 18 months. The Guidelines act as a safe harbour in that if you satisfy the conditions then you can manage your affairs as though the longer period applies.[3]
Of significance is that the Guideline applies before and after its date of issue on 27 June 2019.[4]
To qualify for the safe harbour you must satisfy all of the following:[5]
1. During the first two years after the deceased’s death, more than 12 months was spent addressing one or more of the following circumstances [6]
- 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;
- the complexity of the deceased estate delays the completion of administration of the estate; or
- settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of your control.
2. The dwelling was listed for sale as soon as practically possible after those circumstances were resolved (and the sale was actively managed to completion).
3.The sale completed (settled) within 12 months of the dwelling being listed for sale.
4.The following although may have been present were immaterial to the delay in disposing of your interest:[7]
- 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.
5. The longer period for which you would otherwise need the discretion to be exercised is no more than 18 months.
Other factors that may be relevant to the exercise of the Commissioner’s discretion include but are not limited to:[8]
- The sensitivity of your personal circumstances and/or of other surviving relatives of the deceased;
- The degree of difficulty in locating all beneficiaries required to prove the Will;
- Any period the dwelling was used to produce assessable income; and
- The length of time you held the ownership interest in the dwelling.
What does this mean for you?
You may be able to extend the two year period in which a capital gain or loss may be disregard when a disposing of a dwelling acquired by the executor or beneficiary from a deceased estate for a further period of up to 18 months if you meet the minimum conditions of the safe harbour above.
[1] Income Tax Assessment Act 1997
[2] Income Tax Assessment Act 1997
[3] Australian Taxation Office Practical Compliance Guideline PCG 2019/5 paragraph 8
[4] Australian Taxation Office Practical Compliance Guideline PCG 2019/5 paragraph 7
[5] Australian Taxation Office Practical Compliance Guideline PCG 2019/5 paragraph 11
[6] Australian Taxation Office Practical Compliance Guideline PCG 2019/5 paragraph 12
[7] Australian Taxation Office Practical Compliance Guideline PCG 2019/5 paragraph 13
[8] Australian Taxation Office Practical Compliance Guideline PCG 2019/5 paragraph 17
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