Private ruling: Commissioner's discretion - deceased estate
Date of advice: 6 May 2026
Published: 13 July 2026
Ruling period: Year ending DD MM YY
Date scheme commenced: DD MM YY

Ruling: Q1: Does the implied tenancy of the sibling extend the primary residence exemption under section 118-195 of the Income Tax Assessment Act 1997 for the property? | A1: No. The conditions of section 118-195(1) of the ITAA 1997 have not been met such that the main residence exemption will apply to the property. As a result, any capital gain or capital loss made on the sale of the property cannot be disregarded and will be subject to tax, payable by the executor on behalf of the estate itself. The estate is deemed to have acquired the property on the date the deceased passed away. The first element of the cost base for the 50% share of the property that the deceased acquired on their spouse's passing, will be the market value on the date of death for the deceased.

Relevant facts and circumstances: The property is located at Address A and is on less than 2 hectares. On DD MM YY the deceased acquired 50% of the property as joint tenant with their spouse. On DD MM YY they acquired their spouses' 50% share on their passing. On DD MM YY the deceased passed away intestate. The property was their main residence at the time of their passing and has never been used to produce income. At the time of their passing, the deceased's adult child Person A had resided with them, having done so for many years. Person A went on residing at the property following the deceased's passing. On DD MM YY the family engaged the Law Firm A to assist in administering the estate. It was at this point they were made aware of the 2-year period in which the estate would need to dispose of the property in order for the CGT main residence exemption to apply. On DD MM YY probate was granted to the deceased's child Person B. On DD MM YY the property was transferred into Person B's name as administrator for the deceased estate. From this date until MM YY the lawyers were organising various aspects of the estate including the sale of shares and closure of bank accounts. On DD MM YY a Deed of Distribution was executed between Person B as executor of the estate, and the four children of the deceased being Person B, Person A, Person C, and Person D. The Deed established: • A proposed distribution schedule for the estate among the 4 children as beneficiaries which was attached as Schedule B to the Deed. • Each beneficiary was to receive a 25% share in the proceeds of the estate, less fees and taxes to date, and not including those expected proceeds from the sale of the property. • That all the parties acknowledged that the property, in which Person A still resided, formed part of the estate, and that they were all in agreement that they could remain in the property and when they vacated it, it would be sold and the proceeds, less fees and taxes, would be equally distributed. During this period Person B was searching for a new home but found it difficult to find anything they could afford that they considered reasonable. Person A then received an additional inheritance of $X from a late friend and it was with this additional money that they were able to afford to purchase their own home and vacate the property. On DD MM YY a real estate agency was engaged to sell the property. On DD MM YY a contract of sale was signed. On DD MM YY settlement of the property took place.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-195

Reasons for decision: Summary: Section 118-195 of the ITAA 1997 states that if you own a dwelling in your capacity as a beneficiary of a deceased estate, or you owned it as the trustee of a deceased estate, that you are exempt from tax made on any capital gain made on the disposal of the property if: • The property was acquired by the deceased before 20 September 1985, or • The property was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income, and • Your ownership interest ends within 2 years of the deceased's death. You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed). | Detailed Reasoning - Life tenancy: The Commissioner has discretion to extend the two-year time period where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death. Practical Compliance Guideline PCG 2019/5: The Commissioner's discretion to extend the two-year period to dispose of dwellings acquired from a deceased estate outlines the factors that the Commissioner will consider when determining whether to exercise his discretion to extend the two-year period under section 118-195 of the ITAA 1997. This discretion may be exercised in situations where: • the ownership of a dwelling or the Will is challenged • a life tenancy or other equitable interest given in the Will delays the disposal of the dwelling • the complexity of a deceased estate delays the completion of administration of the estate • settlement of the contract of sale of the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control • restrictions on real estate activities imposed by a government authority in response to the COVID-19 pandemic A life tenancy is granted by the provisions of the Wil of a deceased. Draft Taxation Determination TD 2026/D1 Income tax: deceased estates - meaning of 'right to occupy the dwelling under the deceased' swill' in item 2(b) of column 3 of the table in subsection 118-195(1) of the Income Tax Assessment Act 1997 clarifies when a right to occupy exists. The TD notes the case of Caratti v Commissioner of State Revenue (Caratti) in which the Supreme Court of Western Australia held the view that a right granted in pre-testamentary or post-testamentary agreement does not amount to a right granted under the terms of a Will. Paragraph 15 of the TD advises: "In light of the statutory context in which the words 'under the deceased's will' are found in section 118-195, and consistent with the reasoning adopted in case law, item 2(b) is limited to circumstances where a right to occupy has been expressly granted under the terms of the will to an individual specifically named in the will." | Detailed Reasoning - Commissioner's discretion: Where none of the factors in item 2 column 3 of the table in section 118-195 of the ITAA 1997 can apply, and the ownership period did not end within 2 years, the only remaining factor for consideration is the allowance of a longer period of time to dispose of the dwelling at the discretion of the Commissioner. The examples provided in the PCG are not exhaustive. They provide guidance on what factors the Commissioner would consider reasonable to exercise their discretion to extend the two-year period. Generally, the Commissioner will allow a longer period where the sale of the dwelling could not be settled within two years of the deceased's death due to reasons beyond your control. Consideration is given to whether the property was listed for sale as soon as practically possible after the resolution of any of these factors, and if the sale was completed within 12 months of the property being listed for sale. PCG 2019/5 also outlines factors that would weigh against the Commissioner allowing a longer period. Where these factors play a role in any delay in disposing of the property, the Commissioner would not consider discretion to be appropriate: • waiting for the property market to pick up before selling • waiting for refurbishment of the dwelling to improve sale price • inconvenience on the part of the trustee or beneficiary to organise the sale of the dwelling, or • unexplained periods of inactivity by the executor in attending to the administration of the estate. Whether the Commissioner will exercise his discretion under subsection 118-195(1) of the ITAA 1997 will depend on the facts of each case. The facts that caused the delay in disposing of the property are more important than the length of the delay. | Detailed Reasoning - Application to your circumstances: The CGT main residence exemption for a deceased estate cannot be applied to the property such that any capital gain or loss can be disregarded. The estate is deemed to have acquired the property on the date of the deceased's passing and its ownership period ended on the date of settlement of sale. The property was not, for the entire period of the estate's ownership, the main residence of either: • a spouse of the deceased, • an individual with as right to occupy under a Will, or • a beneficiary to whom the ownership interest had passed. The deceased passed away intestate and their spouse had pre-deceased them. While the Deed of Distribution executed on DD MM YY identified the four children of the deceased, including Person A, as being beneficiaries of the estate, the property never passed to the beneficiaries, having been sold by the estate. At clause 2 of the Deed, it recognises the property as being part of the estate. It notes an agreement among the beneficiaries that Person A, who was residing in the property at the time, could remain there until around YY when it was to be sold and the proceeds distributed. The deceased passed away leaving no Will, and as confirmed in the case of Caratti, any right to reside under a post-testamentary agreement will not be a 'right to occupy the dwelling under the deceased's will'. As none of the conditions of item 2 column 3 of the table in section 118-195 (1) can be met, and the property was not sold within 2 years of the deceased's passing, the estate requires the Commissioner's discretion to extend the 2-year period in order to be eligible for exemption and disregard any capital gain or loss. Consideration needs to be given to the factors behind the delay in disposing of the property X years and Y months after the deceased's passing and whether these were factors that were beyond the control of the executor. You have advised that you were not aware of the 2 year period in which an estate needs to dispose of a property for the main residence exemption to apply. It was not until the family sought legal assistance in administering the estate that you became aware of it. By this point in time, the 2 year period was past. While unfortunate, a lack of familiarity or awareness of something cannot be deemed to be outside of your control. As demonstrated when you did seek legal assistance, the information and knowledge is available when sought. Having considered the relevant facts, we will not apply the discretion under subsection 118- 195(1) to allow an extension to the two-year time limit. It is the Commissioner's view that the delay in disposing of the property was due to a lack of awareness of the 2 year period and a desire within the family to support Person A while they found their own home. While understandable, these are not factors that were outside of your control. The Commissioner has not exercised the discretion to extend the two-year period to dispose of a dwelling under section 118-195. Therefore, any capital gain made on the property from the date the deceased passed away until the property is disposed of will be taxable to the estate.