Private ruling: Deceased estate - main residence exemption
Date of advice: 4 June 2026
Published: 17 August 2026
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner consider exercising the discretion in section 118-150 of the Income Tax Assessment Act 1997 (ITAA 1997) to grant an extension to the period to build Property A? | A1: No. | Q2: Will the Commissioner exercise the discretion under section 118-195 of the ITAA 1997 to allow an extension of time for you to dispose of your ownership interest in Property B and disregard the capital gain or loss you made on the disposal? | A2: No. | Q3: Can you include holding costs in the cost base of Property B? | A3: Yes.

Relevant facts and circumstances: On Date 3, Person A's spouse (Person B) purchased land solely in their own name and began building a house. Person B moved into the house on the land (Property A) several months later. Person A and Person B were married shortly after the purchase of Property A. Person A moved into Property A shortly after they and Person B were married. On Date 4, Person A purchased land. On Date 5, Person A and Person B began construction of a house on the land at Property B. On or around Date 6, construction of the house was completed. The house consisted of several bedrooms, a living room, a dining room, a laundry and a bathroom. Person A used their superannuation to finance the building of Property B. Person A and Person B maintained Property A so they could reside there when they weren't staying at Property B. On or around Date 6, construction of the house was completed. The house consisted of several bedrooms, a living room, a dining room, a laundry and a bathroom. Following completion of construction, Person A and Person B spent time at Property B painting, tiling and moving furniture into the property. An occupancy certificate was not required as construction of the house commenced before the date when occupancy certificates become compulsory. The total size of Property B is less than X. Person A and their family were builders, and they stayed at Property B whenever they undertook construction activities, primarily on weekends and holidays. Person A and Person B stayed at Property B regularly during their ownership to attend to maintenance of the property and visit their child and their family who lived nearby. Person A kept furniture, clothing, electrical items and items for property maintenance at Property B. They also kept a fridge, washing machine, dryer and toiletries at the property. On Date 7, Person B transferred a percentage of Property A to them. From Date 8 to Date one, Person A claimed the main residence exemption for Property A. On Date 9, Person B passed away. On the death of Person B, Person A acquired Person B's share of Property A. Person A had mail delivered to Property A and was enrolled to vote in the electorate that Property A was located in. Following the sale of Property A, Person A had mail delivered to their child's house where they were residing. Person A made the decision to sell Property A due to changes in their personal and financial circumstances. On Date 10, Person A entered into a contract of sale for Property A. On Date 11, settlement on the sale of Property A occurred. Prior to the sale of Property A, Person A's child would take them to Property B at least once per month where Person A and their child would stay for several days. Person A's child was able to work from home and take flex days from work to accommodate travel to and stays at Property B. Following the sale of Property A, Person A did not move into Property B. They resided with their child and then were hospitalised until the time of their death. After the sale of Property A, Person A stayed at Property B with family during several periods. As Person A was not able to drive, they relied on their children to take them to Property B. On Date 12, Person A passed away. Several months later, Real Estate A attended Property B. They provided you with an agency portfolio and an estimated sale price Following this, an agency agreement with Real Estate A was drawn up and signed. Shortly after, Property B was listed for sale. On Date 13, probate was granted. Some months later, you contacted Real Estate A you were concerned the sale process was taking too long. By that time, only one offer had been received which was contingent on the prospective purchaser selling their property. The prospective buyer did not make a deposit to hold the property. On Date 14, you agreed to reduce the sale price. On Date 15, the prospective buyer officially withdrew their offer. On Date 16, you terminated the agency agreement with Real Estate A due to the lack of enquiries. You then appointed Real Estate B to be the selling agent. On Date 17, you received an offer to buy the property. On Date 18, you accepted the offer. On Date 19, you signed a contract for the sale of Property B. On Date 20, settlement on the sale of Property B occurred.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 110-25(4) | Income Tax Assessment Act 1997 subsection 110-40(2) | Income Tax Assessment Act 1997 section 118-140 | Income Tax Assessment Act 1997 section 118-150 | Income Tax Assessment Act 1997 section 118-185 | Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1997 section 118-200

Reasons for decision: Summary: The Commissioner will not consider exercising the discretion in section 118-150 of the ITAA 1997 to extend the 4-year period to build Property B. | Detailed Reasoning - Detailed reasoning: In some situations, you can treat a property as your main residence before you move in. Subsection 118-150 (1) of the ITAA 1997 applies to land in which you have an ownership interest in if you build a dwelling on the land, or repair, renovate or finish building a dwelling on the land. Subsection 118-150(2) of the ITAA 1997 provides that you can choose to apply this subdivision as if the dwelling that you are building, repairing or renovating on the land were your main residence from the time you acquired your ownership interest. | Detailed Reasoning - Subsection 118-150(3) provides that you can make the choice only if:: (a) a dwelling on the land that you construct, repair or renovate becomes your main residence as soon as practicable after the work is finished; and (b) it continues to be your main residence for at least 3 months Subsection 118-150(4) provides that the Commissioner has a discretion to extend the 4-year period where the taxpayer does not build, repair or renovate a dwelling and establish it as their main residence within 4 years. The Explanatory Memorandum to the Tax Laws Amendment (2011 Measures No 2) Bill 2011 which introduced the discretion outlines the circumstances in which the Commissioner may exercise the discretion: • when the taxpayer is unable to build, repair or renovate the dwelling within this time period due to circumstances outside their control. For example, the relevant builder becomes bankrupt and is unable to complete the building, repairs or renovations. • when the taxpayer is unable to build, repair or renovate the dwelling due to unforeseen circumstances arising during this period. For example, the taxpayer or a family member has a severe illness or injury. • building, repairing or renovating the dwelling within the 4 years would impose a severe financial burden on the taxpayer. For example, the taxpayer would be required to incur an excessively high level of debt relative to their income. Consequently, the taxpayer may spend time accumulating sufficient savings (relative to their income) to build, repair or renovate a reasonable dwelling relative to their circumstances. The above examples outline that the discretion will only be exercised in limited circumstances which are outside the taxpayer's control and/or where serious financial circumstances would make it overly 'burdensome' to comply with the 4-year requirement. | Detailed Reasoning - Subsection 118-150(3): As outlined above, to be eligible for an extension to the main residence exemption in 118-150, the dwelling must become your main residence as soon as possible after the dwelling is built and able to be occupied. The dwelling must also continue to be your main residence for at least 3 months. Whether a dwelling is your main residence is a question of fact and circumstances and will be decided in the light of all the relevant circumstances. Whether a dwelling is your main residence must be decided objectively. As stated by Nourse J in Frost v Feltham (1981) STC 115 at p 118: • The matter must be decided objectively and, on its own, the taxpayer's view could not carry much weight. Even where you spend significant periods of time at a property, this will not necessarily mean that a property is your main residence (Case 26/93, 93 ATC 320). A number of factors can indicate that a property is your main residence including the following: • length of time lived at a property • where you keep your personal belongings • where your mail gets delivered • your electoral role address • your intentions in occupying the property Generally, you can only have one main residence at a time, with the exception of section 118-140 of the ITAA 1997, which allows a short period where you are disposing of a property and moving into another. | Detailed Reasoning - Application to your circumstances: Before considering whether the Commissioner will grant an extension to the 4-year period, it is necessary to examine whether the requirements in subsection 118-150(3) are met. In this instance, Person A exercised the main residence choice for Property A for the period from Date 7 to Date one. As Person A exercised the main residence choice for Property A from Date 7 to Date one, Property B could not be nominated as their main residence for CGT purposes during the same period. Based on the information provided, Person A never established Property B as their main residence from when it was able to be occupied. Person A also did not continually reside there for a period of at least 3 months once Property A was able to be occupied. We have considered the following factors when coming to this decision: • you advised that Person A stayed at Property B primarily on weekends and holidays while construction of the property was taking place • by the time construction of Property B was completed, Person A had established Property A as their main residence, evidenced by the exercise of the main residence exemption on disposal of Property A for the period from Date 7 to Date one • after Property B was able to be occupied, Person A stayed there regularly but returned to Property A after each stay As the requirements for an extension to the main residence exemption in accordance with subsection 118-150 (3) have not been met, the Commissioner will not consider whether an extension to the 4-year period to build a dwelling will be granted. Therefore, the Commissioner will not grant an extension to the 4-year period to build, renovate or repair a dwelling and establish it as your main residence. As outlined above, Property A was already being used as the Deceased's main residence at the time Property B was able to be occupied. As you are only able to have one main residence at a time, this means that Property B could not be the Deceased's main residence for the period from Date 7 to Date one. Therefore, the Commissioner will not grant an extension to the 4-year period in section 118-150 of the ITAA 1997 to build a dwelling and establish it as your main residence. | Summary: You cannot apply the main residence exemption for the period after Property A was disposed of on disposal of Property B. | Detailed Reasoning - Detailed reasoning: Section 118-200 of the ITAA 1997 provides that you get only a partial exemption for a CGT event that happens in relation to a dwelling or your ownership interest in it if: The period after Property A was disposed of will not be considered main-residence days for the purpose of calculating any main residence exemption on the sale of the Property B. | Detailed Reasoning - Detailed reasoning: Section 118-200 of the ITAA 1997 provides that you get only a partial exemption for a CGT event that happens in relation to a dwelling or your ownership interest in it if: (a) you are an individual and your ownership interest in a dwelling passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and (b) section 118-195 does not apply You calculate your capital gain or capital loss using the formula Non- main residence days is the sum of: Where the deceased acquired the ownership interest on or after 20 September 1985, the number of days in the deceased's ownership period when the dwelling was not the deceased's main residence; and The number of days in the period from the death until your ownership interest ends when the dwelling was not the main residence of an individual referred to in item 2, column 3 of the table in section 1180195. Determining whether a taxpayer has established a dwelling as their main residence is a question of fact. The mere fact that a taxpayer has an ownership interest in only one property is not sufficient to establish a property as a main residence for the purposes of the main residence exemption. | Detailed Reasoning - Application to your circumstances: Following the sale of Property A, Person A never moved into Property B and established it as their main residence. Although you have advised it was their intention to do so, they stayed with relatives and then spent the last few months of their life in hospital. Couch v FC of T 2009 ATC 10-072 confirms that the mere intention to move into a dwelling is not sufficient to establish a dwelling as your main residence. Even where you have an ownership interest in only one property and stay there on occasion, this fact is not sufficient to meet the requirements for the main residence exemption. The property must also qualify as a main residence. See AAT Case 8769 (1993) 26 ATR 1051. As Person A had never established Property B as their main residence prior to the sale of Property A, the only way you would receive any exemption on the sale of Property B is if the Deceased physically moved into the property and established it as their main residence after the sale of Property A. We have considered the following factors when coming to a decision about Property B and any partial exemption available to you: • following the sale of Property A, Person A moved in with their child • Person A visited Property B and stayed for several periods with their family but always returned to their child's house • Person A was unable to drive so relied on their family for transport • Person A was admitted to hospital several months after the sale of Property A and remained there until they passed away • the fact that Person A kept household items, appliances and clothing at Property A supports that they stayed at the property regularly. However, this is not sufficient to satisfy the conditions for the main residence exemption As Person A never established Property B as their main residence, you cannot apply the main residence exemption for the period after Property A was disposed of on the disposal of Property B. | Summary: The Commissioner will not exercise the discretion under section 118-195 of the Income Tax Assessment Act 1997 to allow an extension of time for you to dispose of your ownership interest in Property B and disregard the capital gain or capital loss you made on the disposal. | Detailed Reasoning - Detailed reasoning: Section 118-195(1) of the ITAA 1997 provides that you can disregard a capital gain or capital loss you make from a CGT event that happens in relation to a dwelling or your ownership interest in it if: (a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and (b) the deceased acquired the ownership interest on or after 20 September 1985 and the dwelling was the deceased's main residence just before their death and was not then being used for the purpose of producing assessable income and (c) your ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner | Detailed Reasoning - Application to your circumstances: As the Deceased acquired their interest in Property B on or after 20 September 1985, to meet the requirements for the granting of an extension to the 2-year period the following criteria must be met: • just before the deceased's death the dwelling was the deceased's main residence • the dwelling was not being used for the purpose of producing assessable income; and • the dwelling is disposed of within 2 years or a longer period allowed by the Commissioner As Property B was never the Deceased's main residence, the Commissioner will not exercise the discretion under section 118-195 of the Income Tax Assessment Act 1997 to allow an extension of time for you to dispose of your ownership interest in Property B and disregard the capital gain or capital loss you made on the disposal. | Summary: You can include holding costs for Property B in the cost base. | Detailed Reasoning - Detailed reasoning: Section 110-25 of the ITAA 1997 provides that the cost base of a CGT asset consists of 5 elements. Subsection 110-25(4) of the ITAA 1997 provides that the 3 rd element of the cost base is the cost of owning the CGT asset you incurred (but only if you acquired the asset after 20 August 1991). These costs include: (b) interest on money you borrowed to acquire the asset (c) costs of maintaining, repairing or insuring it; and (d) rates or land tax, if the asset is land; and (e) interest on money you borrowed to refinance the money you borrowed to acquire the asset; and (f) interest on money you borrowed to finance the capital expenditure you incurred to increase the asset's value. The list in subsection 110-25(4) is not exhaustive. Subsection 110-40(2) of the ITAA 1997 provides that expenditure does not form part of the second or third element of the cost base to the extent that you have deducted or can deduct it. | Detailed Reasoning - Application to your circumstances: You can include the costs of owning Property B in the cost base, provided they do not include costs that you have deducted or can deduct.