Private ruling: Deceased estate
Date of advice: 19 December 2025
Published: 9 February 2026
Ruling period: Period ending DD MM YY
Date scheme commenced: DD MM YY

Ruling: Q1: Was the property at Address A occupied for your full ownership period by somebody who had a right to reside under the deceased's Will for the purposes of column 3, item 2(b) in subsection 118-195 of the ITAA 1997? | A1: No. | Q2: Will the Commissioner exercise the discretion to extend the two-year period in subsection 118-195(1) of the ITAA l997 so that the estate can disregard any capital gain made on the disposal of the property? | A2: No.

Relevant facts and circumstances: On DD MM YY the deceased purchased the property as sole proprietor. The property is less than 2 hectares in size. At the time of their passing the deceased resided at the property, as their main residence, with their second spouse Person A. The property was not used to produce assessable income. On DD MM YY the deceased executed their Will and appointed their three children from their first marriage, as executors. The children were Person B, Person C, and Person D. Under the Will: At clause 7, the deceased's current spouse Person A, had a right to reside at the property at Address A, as long they paid all the expenses for the property and maintained it in good order. This right to reside ended at the earlier of Person A's passing, them vacating the property, or Person A failing to meet the expenses of the property. Once this right ended the property would form the residual of the estate and under clause 8.1, was to be divided among the three children. The Will provided for the establishment of a trust and a primary beneficiary nominated to be the trustee of the trust. Clause 12 of the Will sets out the discretionary powers of the trustee, including providing a right of occupation for any residence that formed part of the trust, with a personal right of occupation in favour of the primary beneficiary. Clause 21 of the Will gave the executors and the trustees of any trusts established under the Will the power to invest in non-income producing assets including property for occupation or use by a beneficiary. On DD MM YY the deceased passed away. Person A continued to reside at the property. In MM YY Person B moved into the property to assist Person A. On DD MM YY the children engaged Law Firm A to assist with administering the estate. On DD MM YY probate was granted to the executors. In MM YY Person A vacated the property, ending their right of residency. Between MM YY and MM YY, the children were in dispute over how to administer the estate including: A dispute in relation to transactions that had occurred on the deceased's bank account during the administration period. A dispute in relation to the mortgage held over the property and for whose benefit this had been taken out. Whether the property should be sold outright or whether Person B and Person D should buy Person C out. A dispute in relation to caveats that had been placed on the property by third parties. Whether all of three children should remain as executors or only some. These disputes involved correspondence moving between several legal representatives and ultimately could not be resolved and culminated in the removal of the children as executors and the appointment of an independent executor. On DD MM YY the children decided to appoint Solicitor A of Law Firm B as an independent administrator of the estate. It was agreed that Person B would be permitted to continue residing in the dwelling, pending the appointment of the independent administer. We were advised that when the independent administrator was appointed the children would no longer have any authority to permit Person B to reside in the dwelling. On DD MM YY the parties wrote to the Supreme Court (the Court) seeking consent orders to appoint Solicitor A as the independent administrator of the estate. On DD MM YY the Court made orders revoking the probate granted to the children and appointed Solicitor A as the administrator of the estate. On DD MM YY Solicitor A wrote to the Court registry publish notice of intention to apply for Letters of Administration published, which was published on DD MM YY. On DD MM YY the administrator's application for the grant of Letters of Administration was filed. The Court sent requisitions on DD MM YY and DD MM YY. The latter required the provision of the original grant of probate to the children be submitted to the Court registry. The document was retrieved from the children and provided to the Court registry on DD MM YY. On DD MM YY Person B vacated the property. On DD MM YY the Court granted the Letters of Administration of the estate to Solicitor A. On DD MM YY a real estate agency was engaged to market the property for sale. The agreement with the agency was negotiated and signed on DD MM YY. On DD MM YY the title of the property was transferred to the executor for the estate. On DD MM YY the property was listed for auction and subsequently sold at auction. On DD MM YY settlement took place.

Relevant legislative provisions: Income Tx Assessment act 1997 section 118-195 | Income Tx Assessment act 1997 section 118-210

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). 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 These examples are not exhaustive. They provide guidance on what factors the Commissioner would consider reasonable to exercise his 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 deceased acquired the property pre-CGT and it was their main residence, at the time they died, as well as that of their spouse Person A. The Will executed by the deceased gave Person A a 'Right of Residence' of the property at Address A under clause X. Person A had the right to remain in the dwelling for their lifetime, or until they vacated it or could no longer maintain the dwelling. Person A did remain in the dwelling for X years and X month following the passing of the deceased at which point they vacated the dwelling. The right to reside is consistent with the second dot point of paragraph 12 of the PCG and did contribute to the initial delay in disposing of the property. Items 2(a) and (b), column 3 of the table in section 118-195 of the ITAA 1997 state that the dwelling must, for the whole of the estate's ownership period, be the main residence of either the spouse of the deceased or an individual with a right to occupy under the Will. With Person A vacating the dwelling it became part of the residue of the estate and the executors were then instructed by the Will to divide the estate between the beneficiaries. Person B moved into the dwelling in MM YY, shortly after the passing of their parent. They remained in the dwelling following Person A's move, staying there until MM YY, before moving out X months prior to settlement and the end of your ownership period. The deceased passed away on DD MM YY and settlement of the property occurred on DD MM YY, X years and X months later. Person A, as the deceased's spouse, resided in the dwelling for X years and X month after the deceased's death. Person B, who did not have a right to reside, vacated the dwelling X months prior to settlement. It is the Commissioner's view, that Person B was not "an individual who had a right to reside in the dwelling under the deceased's Will". The Will allowed for the establishment of a trust, with a primary beneficiary nominated as the trustee of the trust (clause 2.3). Clause 12.2 of the Will allowed the trustee to hold a residence that would form part of the trust and provided a right of occupation to the primary beneficiary, or any other beneficiary. This clause does not name the property at Address A. This view is supported by Clause 21.1 of the Will which provided the right to invest in non-income producing assets including "property for occupation or use by a beneficiary". As the conditions for items 2 (a) and (b), column 3 of the table in section 118-195 of the ITAA 1997 have not been met, and the property settled more than X years after the passing of the deceased, 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. We have considered the following factors as favourable. Person A's right to reside in the dwelling, preventing the property from being sold within the first 2 years, after the deceased's death. Person A vacated the property in MM YY, with no intention to return to the dwelling. Between MM YY and MM YY, the executors were in dispute regarding the property, engaging lawyers to act on their behalf. The matter was resolved in MM YY with the appointment of an independent administrator for the estate. We have also considered that Person B remained living in the dwelling, after Person A vacated, with no right to reside provided for Person B in the deceased's Will. Having considered the relevant facts, we will not apply the discretion under subsection 118-195(1) of the ITAA 1997 to allow an extension to the two-year time limit. Therefore, the normal capital gains tax (CGT) rules will apply to the disposal of the property. You should note that the first element of your cost base for the property is its market value on the deceased's date of death. You are also entitled to the 50% CGT discount in relation to the property.