Private ruling: Capital Gains Tax - 2-year discretion
Date of advice: 11 November 2025
Published: 5 January 2026
Ruling period: XX XXXXX 20XX
Date scheme commenced: XX XXXXX 20XX

Ruling: Q1: Will the Commissioner 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 the property and disregards the capital gain or capital loss you made on the disposal? | A1: No.

Relevant facts and circumstances: The deceased passed away on XX XXXXX 20XX at the property. The property is less than 2 hectares. The deceased passed away. A tragic event happened at the property which attracted media attention. The property was the deceased's main residence just before their death. The property was not used for the purpose of producing assessable income at the time of the deceased's death. On XX XXXXX 20XX, the deceased created and signed their Last Will and Testament. On XX XXXXX 20XX, probate was granted to the Executor. The property was inherited by beneficiaries under the Will. From XXXXX - XXXXX 20XX, the property had been listed for sale by the deceased, prior to their death. The property was not the main residence of either the spouse of the deceased, or a beneficiary under the Will, or someone else under the Will who had a right to occupy the property. In XXXXX 20XX, the property was advertised for rent. The Real Estate Agent managed the rental of the property. In XXXXX 20XX, a tenant moved into the property. After the deceased's death, the property was first listed for sale between XXXXX 20XX and XXXXX 20XX, advising price on application. Potential buyers who applied were advised a price of $X.X - $X XXXXXX. There were no formal offers during this period. In XXXXX 20XX, the property was placed back on the market, advertised as 'Close of Best Offers'. On XX XXXXX 20XX, a Contract of Sale for the property was signed. On XX XXXXX 20XX, the property settlement occurred. The property sold for $X,XXX,XXX.

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

Reasons for decision: Summary: A capital gain or capital loss may be disregarded where a capital gains tax event happens to a dwelling if you owned it as the trustee or beneficiary of the deceased estate. For a dwelling acquired by the deceased after 19 September 1985, that was the deceased's main residence and not used to produce assessable income just before their death, you will be entitled to a full exemption if your ownership interest ends within two years of the deceased's death. Your ownership interest ends at the time of settlement of the contract of sale. In your case, the deceased acquired the property after 19 September 1985. After the deceased passed away, you owned the property as beneficiary of the estate. The property was the deceased's main residence until just before they passed away and was not used to produce assessable income at that time. The property sale settled more than two years after the deceased's death. Therefore, you require the Commissioner's discretion to extend the two-year period to be eligible for an exemption. 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, provides guidance on factors we consider when deciding whether to grant the discretion. Paragraph 3 of PCG 2019/5 provides that generally we will allow a longer period where the dwelling could not be sold and settled within two years of the deceased's death due to reasons beyond your control that existed for a significant portion of the first two years. Paragraph 14 of PCG 2019/5 explains we weigh up all of the factors (both favourable and adverse). Paragraph 17of PCG 2019/5 provides a list of other factors that may be relevant to the exercise of the Commissioner's discretion which includes the sensitivity of your personal circumstances. In applying this to your circumstances, we acknowledge that, sensitive circumstances occurred, it is understandable that you felt it was difficult to sell the property during this period. It is noted that the property was able to be advertised for rent and was available for rent. Also, the property has been almost continuously tenanted during X separate tenancies by unrelated parties between XXXXX 20XX and XXXXX 20XX. The income earned from the property has varied from $XXXX per week to $XXXX per week. You were able to rent the property, with the rental amount being determined by the property manager at the time of tenancy. The property was first advertised for sale between XXXXX 20XX and XXXXX 20XX, with 'the price on application'; however, there was no interest. Despite the lack of interest, the information supplied does not indicate that there was any change in sale strategy, such as marketing the property with an asking price. The property was formally listed for sale in XXXXX 20XX when the most recent tenants moved out. A Contract of Sale was signed in XXXXX 20XX and the property settlement occurred in XXXXX 20XX, approximately XX years after the deceased's death. The property has appreciated in value, since your initial attempts to sell the property. The deceased had listed the property for sale for $X,XXX,XXX prior to their death. You first attempted to sell the property for $X,XXX,XXX - $X,XXX,XXX from XXXXX 20XX - XXXXX 20XX, with the sale being completed in 20XX for $X,XXX,XXX. 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 the cost base for the property is its market value on the deceased's date of death. That is, CGT is not payable on the property while it was the deceased's residence; rather, it is only payable for the increase in value during the subsequent X years when it was predominantly a rental property. You are also entitled to the 50% CGT discount in relation to the property.