On Wed 22.8.2018, the ATO issued Draft Practical Compliance Guideline PCG 2018/D6. This relates to the operation of the 2 year rule in s118-195(1)(b), item 1, column 3, of the ITAA97.

This provision deals with a dwelling that was the deceased’s main residence, at the date of death, and gives some latitude for that exemption to, in effect, continue in the hands of the  Legal Personal Representative (LPR) and also, in the Beneficiary’s hands (where applicable). But to have any CGT disregarded, they must dispose of the dwelling, within 2 years of the date of death. This provision could assist in the following situations.

  • An LPR has 2 years in which to sell the deceased’s main residence, without the LPR/Estate being taxed on the gain (over the market value since the date of death – see s128-15(4), item 3).
  • The LPR might transfer the dwelling, in-specie, to a beneficiary, giving the beneficiary 2 years (from the date of death), to either sell without tax (on the gain since the date of death) or to live in the dwelling and have an unbroken period of ownership, as their main residence.

Because the administration of deceased estates did not easily fit into the 2-year period, the law was amended so the Commissioner could extend the period. And, this is the subject of the Draft PCG.

  1. It sets out the ‘favourable’ and ‘unfavourable’ factors the Commissioner considers, when deciding whether to extend the period.
  2. It also outlines a safe harbour compliance approach, that allows taxpayers to manage their tax affairs, as though the Commissioner has exercised the discretion, albeit the relatively short period of a further 12 months (although longer extensions remain available by actually applying to the ATO).

The 12 month extension ‘safe harbour’

To qualify for the safe harbour, you must satisfy all of the following 5 conditions:

  1. 12 months was spent dealing with circumstances favourable to an extension of time (see those listed below).
  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 settled within six months of the dwelling being listed for sale.
  4. Adverse factors did not materially contribute to delay (see those stated below).
  5. The extension is no more than 12 months (3 years from the date of death).

This might seem quite restrictive, but for longer extensions, different kinds of disposition (ie. not just a sale) or other circumstances, the LPR can actually ask the Commissioner, to extend the 2-year period and see what the answer is.

Factors favourable to the exercise of the Commissioner’s discretion

The following is a non-exhaustive list of factors which would weigh in favour of allowing a longer period:

  • 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 sale is delayed, or the sale falls through, for reasons outside of your control.

Factors adverse to the exercise of the Commissioner’s discretion

The following is a non-exhaustive list of factors which would weigh against allowing a longer period:

  • waiting for the property market to pick up before selling the dwelling;
  • delay due to refurbishment of the house to improve the sale price;
  • organising the sale was inconvenient for the LPR or beneficiary; or
  • periods of inactivity by the executor in attending to the administration of the estate.

Other relevant factors (except for ‘safe harbour’)

Other factors that may be relevant to the exercise of the Commissioner’s discretion (but are not relevant for the safe harbour) include but are not limited to:

  • 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.


COMMENTS are due by 21 September 2018.

FJM 4.9.18

[LTN 161, 22/8/18; Tax Month – August 2018]


Comprehension questions (answers available)

  1. Is there a CGT provision, effectively extending the deceased’s main residence exemption to the LPR or a beneficiary of the Estate?
  2. Does the LPR and beneficiary (if applicable) have to dispose of the dwelling within 2 years of the date of death?
  3. Is the ‘safe harbour’ extension (without asking the ATO) limited to 12 months and where the dwelling is being sold?
  4. Is a challenge to the Will a factor the Commissioner treats ‘favourably’ when deciding whether to extend the 2-year period?
  5. Is waiting for the property market to pick up a factor the Commissioner treats ‘favourably’ when deciding whether to extend the 2-year period?



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