Private ruling: Deceased estate - CGT
Date of advice: 25 February 2026
Published: 20 April 2026
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Did the deceased inherit the property as a pre capital gains tax (CGT) asset upon the expiry of the life interest in their relative's estate? | A1: Yes. | Q2: Will the first element of the cost base be the market value of the property at the date of the deceased's death? | A2: Yes.

Relevant facts and circumstances: The deceased passed away on DD MM 20YY. The deceased was a resident of Country X at the time of their death. Prior to the deceased's death, they were a beneficiary of their relative's will. The deceased's relative passed away prior to 20 September 1985. The deceased's relative owned a property. The deceased's relative's will provided that the deceased was to acquire a life interest in the property, for as long as they remained married to their spouse and their spouse was alive. During the period of the life interest, the deceased was permitted to occupy the property or rent it out, provided that the outgoings were paid. The deceased's relative's will also provided that the deceased was to acquire a remainder interest in the property and be granted sole ownership of the property if they survived their spouse or were no longer married to them. In MM 20YY, the deceased moved to Country X. The deceased leased some rooms in the property. The deceased's spouse passed away on DD MM 20YY. On DD MM 20YY, the property was sold. Settlement occurred on DD MM 20YY. The executor of the deceased's estate is a resident of Country X.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-55 | Income Tax Assessment Act 1997 section 106-50 | Income Tax Assessment Act 1997 section 128-15 | Income Tax Assessment Act 1997 section 149-10

Reasons for decision: Summary: Section 104-55 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that capital gains tax (CGT) event E1 happens if you create a trust over a CGT asset by declaration or settlement. However, CGT event E1 does not happen if you are the sole beneficiary of the trust and: (a) you are absolutely entitled to the asset as against the trustee (disregarding any legal disability); and (b) the trust is not a unit trust. Where a beneficiary of a trust is absolutely entitled to the asset of a trust as against the trustee, section 106-50 of the ITAA 1997 treats an act done by the trustee as if the beneficiary had done it. Specifically: For the purposes of this Part and Part 3-3 (about capital gains and losses) and Subdivision 328-C (What is a small business entity), from just after the time you become absolutely entitled to a CGT asset as against the trustee of a trust (disregarding any legal disability), the asset is treated as being your asset (instead of being an asset of the trust) (subsection 106-50(1)). This Part, Part 3-3 and Subdivision 328-C apply, from just after the time you become absolutely entitled to a CGT asset as against the trustee of a trust (disregarding any legal disability), to an act done in relation to the asset by the trustee as if the act had been done by you (instead of by the trustee) (subsection 106-50(2)). Draft Taxation Ruling TR 2004/D25 Income tax: capital gains: meaning of the words 'absolutely entitled to a CGT asset as against the trustee of a trust' as used in Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 (TR 2004/D25) provides the Commissioner's view on what is meant by absolute entitlement. The core principle underpinning the concept of absolute entitlement in the CGT provisions is the ability of a beneficiary, who has a vested and indefeasible interest in the entire trust asset, to call for the asset to be transferred to them or to be transferred at their direction. Section 128-15 of the ITAA 1997 provides for what happens to an asset that was owned by the deceased just prior to death and which devolves to their legal personal representative (LPR). Subsection 128-15(2) of the ITAA 1997 provides that the LPR or beneficiary, is taken to have acquired the asset on the day you died. A capital gain or capital loss you make is disregarded if you acquired the asset before 20 September 1985. Section 149-10 of the ITAA 1997 provides that a CGT asset that an entity owns is a pre-CGT asset if, and only if: (a) the entity last acquired the asset before 20 September 1985; and (b) the entity was not, immediately before the start of the 1998-99 income year, taken under: (i) former subsection 160ZZS(1) of the Income Tax Assessment Act 1936; or (ii) Subdivision C of Division 20 of former Part IIIA of that Act; to have acquired the asset on or after 20 September 1985; and (c) the asset has not stopped being a pre-CGT asset of the entity because of this Division. | Detailed Reasoning - Application to your circumstances: In applying the principles of TR 2004/D25, the deceased became absolutely entitled to the property on DD MM 20YY when their spouse passed away. CGT event E5 would have occurred on the same date, however, the application of section 128-15(2) means that as the property passed to the deceased under the deceased's relative's will, the deceased is deemed to have acquired the property on the day that the deceased's relative died. When the deceased's relative passed away in 19YY, the deceased was deemed to acquire the property as a pre-CGT asset. Therefore, the property was a pre-CGT asset in the hands of the deceased. | Detailed Reasoning - Question 2: As mentioned above, section 128-15 of the ITAA 1997 provides for what happens to an asset that was owned by the deceased just prior to death and which devolves to their LPR. Subsection 128-15(2) of the ITAA 1997 states that the LPR is taken to have acquired the asset on the day the deceased died. The table in section 128-15(4) of the ITAA 1997 shows modifications to the cost base and reduced cost base and item 4 in the table states that the first element of the assets cost base if the asset was acquired by the deceased before 20 September 1985 is the market value of the asset at the date of death. | Detailed Reasoning - Application to your circumstances: In these circumstances, the deceased acquired the property before 20 September 1985 and owned the property just before their death. When the property devolved to their LPR, being the executor of their estate, the first element of cost base for the LPR becomes the market value of the property at the date of death.