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 The Australian Taxation Office (ATO) recently issued Practical Compliance Guideline PCG 2019/5, which has loosened one of the restrictions on the sale of dwellings in a deceased estate. Specifically, executors who require an extension of the two-year deadline to dispose of the ownership interest in the dwelling no longer need to wait for confirmation from the Commissioner of Taxation that the extension has been granted.

However, certain conditions still need to be met.

The context

A capital gain or loss from a CGT event triggered by selling a dwelling in a deceased estate is disregarded if:

  • The dwelling is sold under contract and settles within two years of the owner’s death (or within a longer period as allowed under the Commissioner’s discretion)

AND one of the following applies:

  • The dwelling was acquired before 20 September 1985, or
  • The dwelling was purchased after 19 September 1985 and had been used as the owner’s main residence, without being used to produce assessable income (i.e. rented out) just before they died.

What’s changed?

Until recently, when executors and their tax agents applied to the Taxation Commissioner to extend the deadline for the disposal of ownership of a property from the deceased estate, they needed to apply for a private binding ruling from the ATO that outlines the facts of the case – and then wait for the Commissioner’s ruling. If the Commissioner did not allow the extension then the sale of the dwelling was likely attract a capital gains tax liability.

Thanks to the new guidelines, executors and their tax agents can now assume that the Commissioner will allow an additional 18 months, extending the two-year period to a total of up to 3.5 years after the death of the dwelling’s owner.

There are conditions

However, the new time period only applies if all of the four conditions outlined below are met:

  1. In the first two years after the death of the owner of the dwelling, more than 12 months was spent addressing at least one of the following:

               - Challenge to the will or ownership of the dwelling
               - Delays to the disposal of the dwelling caused by a life or other equitable interest given in the will.
                 (A life interest provides that the property be held in a trust for  the benefit of the owner for the duration of their life.)
               - Delays to the estate administration being completed due to the complexity of the estate
               - Delays to or cancelling of the settlement of the contract of sale for reasons outside of the control of the people who
                 are responsible for (and benefit from) the sale of the dwelling.

  2. The dwelling was listed for sale as soon as practically possible after those circumstances listed in point 1 were resolved (and the sale was actively
      managed to completion).

  3. The sale settled within 12 months after the dwelling was eventually listed for sale, AND

  4. None of the following circumstances apply:
    - Delay caused by refurbishment of the dwelling (to improve the sale price)
    - Inconvenience on the part of the trustee or beneficiary to organise the sale of the property
    - Unexplained period(s) of inactivity by the executor in attending to the estate administration.

    A final word of warning…

    The ATO have warned that they may still conduct a compliance check to ensure the relevant conditions have been satisfied, including checking that the additional period is no longer than 18 months. It remains very important to maintain all records necessary to support the discretion claim – just in case the time period is ever queried.

    This article was written by Chris Holloway from our Taxation Services team September 2019.

    This article was written by Chris Holloway from our Taxation Services team. Equity Trustees Limited (ABN 46 004 031 298) AFSL 240975 and Equity Trustees Wealth Services Limited (ABN 33 006 132 332) AFSL 234528 are part of the EQT Holdings Limited (ABN 22 607 797 615) group of companies, listed on the Australian Securities Exchange (ASX:EQT). This article is intended as a source of information only. In preparing this information, we did not take into account the investment objectives, financial situation and particular needs of any particular person. Before making an investment decision, you need to consider whether this information is appropriate to your needs, objectives and circumstances. Copyright © 2019 Equity Trustees, All rights reserved.