Executors facing unforeseen difficulties in selling an estate property within two years of the date of death are now protected by the Commissioner's safe harbour rules.
What has changed?
On 27 June 2019, the Commissioner of Taxation finalised the practical compliance guideline to extend the time within which executors can dispose of an estate property that was the deceased's main residence and still claim the main residence CGT exemption.
Normally, the exemption will apply to the disposal of the deceased's main residence, provided settlement of the sale occurs within two years of the date of death. However, the Commissioner has the discretion to extend this two-year period.
The new safe harbour approach provides executors with an additional 18 months to dispose of the property, operating as if the Commissioner had exercised their discretion to grant an extension of time. This means that, in certain circumstances, executors will now have a total of 42 months to settle the sale of a deceased's main residence and still claim the exemption without having to seek the Commissioner's approval.
The safe harbour
To qualify for the safe harbour, the executor will need to satisfy a number of conditions. The conditions are as follows:
- During the first two years post-death, over 12 months was spent addressing one or more of the following circumstances:
- a challenge to the ownership of the property or validity of the Will
- delays in disposal due to a life or other equitable interest
- complexity of the administration of the estate
- a delay or termination in settlement of the disposal following circumstances beyond the executor's control.
- The dwelling was listed for sale as soon as practicable after the above circumstances were resolved.
- Settlement occurred within 12 months of listing the dwelling for sale.
- None of the following circumstances materially delayed disposal:
- waiting for a pickup in the property market
- delay due to renovations to improve sale price
- organising the sale was inconvenient for the executor
- unexplained periods of inactivity during the administration process.
- The extension of time required is no more than 18 months.
What does this mean for executors?
If the above conditions are satisfied, the executor can assume that they have received a favourable decision from the Commissioner to extend the two-year time limit up to an additional 18 months.
This safe harbour approach to compliance is designed to protect executors where the delay in disposing of the deceased's main residence is due to circumstances beyond their control.
It is important that executors maintain sufficient records to evidence their satisfaction of the above conditions, should they be called on for a compliance check by the ATO.
It is also important to note that the Commissioner has confirmed it will not entertain even a small delay beyond two years where no relevant circumstances are present. Delays caused by circumstances that were a matter of choice for the executor, and therefore within their control, will not be relevant and will therefore not be protected by the safe harbour.
The new safe harbour decision will assist executors who are administering estates caught up in lengthy family provision applications or extensive searches for beneficiaries, and face delays in carrying out their duty to dispose of the deceased's property.
Cooper Grace Ward is a leading Australian law firm based in Brisbane.
This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.