Private ruling: Destroyed dwelling - deceased estate
Date of advice: 26 March 2026
Published: 9 June 2026
Ruling period: Period ending 30 June 20XX
Date scheme commenced: XX June 20XX

Ruling: Q1: Can section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to disregard the capital gain on the sale of vacant land? | A1: No. Section 118-195 of the ITAA 1997 does not apply as it requires the CGT event to happen to a 'dwelling' and therefore the provision cannot apply to the sale of vacant land

Relevant facts and circumstances: The deceased died on X XXXXX 202X intestate. Their estate listed several assets including a property situated at XX XXXXX XXX in XXXXXX (the 'Property'). The Property was acquired by the deceased before1976 (pre-CGT). The Property was not used by the deceased as their main residence at the time of their passing. The Property was less than 2 hectares in size and no capital improvements were made on the Property following the deceased's death. The deceased resided in another property, Property B, of which they held an ownership interest through a right to reside left in their parent's Will and was residing there at the time of their passing. The dwelling on the Property was destroyed by fire on XX XXXX 202X during administration of the estate. The Coroner's Court directed administration to the State Trustees Limited (STL) as the deceased had no family or next of kin who could provide instructions regarding administration of the estate. STL was approached a few days later by the local Council (MVC) to assist with managing the estate as the destroyed dwelling was now a hazard to the community. STL carried out several tasks including looking for next of kin, writing to banks, liaising with funeral directors, and following this, STL confirmed their intention of seeking a grant of Letters of Administration for the estate. MVC subsequently demolished the dwelling under their emergency powers prior to STL obtaining a grant of letters of Administration. Another dwelling has not been built on the land following demolition of the original dwelling. No insurance proceeds were received as the policy held by the deceased had lapsed at some time during the previous calendar year. No Executor or Legal Personal Representative had been nominated or authorised to administer the estate as the deceased died intestate, until such time as STL were granted Letters of Administration. STL commenced the sale process within X months of the deceased's death upon receiving the Letters of Administration. The Property was vacant land only. The Property sold and settled in 20XX at auction within two years of the deceased's death

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

Reasons for decision: Summary: No. Section 118-195 of the ITAA 1997 does not apply as it requires the CGT event to happen to a dwelling and therefore the provision cannot apply to the sale of vacant land. | Detailed Reasoning - Detailed reasoning: Section 118-195 only applies where the CGT event relates to a dwelling that: • was the deceased's main residence and not producing income just before they died, or • was acquired pre-CGT (before 20 September 1985) The ATO's practical guidance (PCG 2019/5) only deals with the Commissioner's discretion to extend the 2-year period for disposing of a dwelling acquired from a deceased estate. It expressly concerns dwellings, not land. When the dwelling is no longer on the land (for example, destroyed after death), the asset being sold is vacant land, and the deceased-estate main-residence exemption cannot apply because the exemption in section 118-195 is framed around the disposal of an 'ownership interest in a dwelling'. Vacant land is not a dwelling. For the purposes of section 118-195 the term dwelling takes its meaning from s 118-115(1) ITAA 1997, which applies generally to the CGT main residence provisions (Subdivision 118-B), including deceased-estate cases under s 118-195. Under s 118-115(1) ITAA 1997, a dwelling includes: • A unit of accommodation that: ­ is a building or contained in a building, and ­ consists wholly or mainly of residential accommodation; and • A unit of accommodation that is a caravan, houseboat or other mobile home; and • Any land immediately under the unit of accommodation. This definition applies when determining whether a CGT event happens in relation to a dwelling for the purposes of section118-195 (dwelling acquired from a deceased estate). Where the dwelling ceases to exist, the disposal no longer satisfies the legislative condition that it be an 'ownership interest in a dwelling'. Therefore, section 118-195 of the ITAA 1997 cannot apply to disregard the capital gain on the sale of vacant land even if delays occurred and even if they were outside the executor's control. There is no discretion to treat vacant land as a dwelling for the purpose of the exemption. Since section 118-195 does not apply, the estate must calculate CGT using the general CGT rules under Division 128 ITAA 1997. As the deceased acquired the property before 20 September 1985, item 4 of the table in subsection 128-14(4) of the ITAA 1997 applies to deem the cost base of the property for the trustee of the deceased estate to be the market value of the property on the day the deceased died. The property still had a dwelling on it when the deceased died, therefore the market value of the property on the day the deceased died would include the value of both the land and the dwelling at that time. Consequently, there may not be a significant capital gain, if any, on the sale of the vacant land approximately a year later. The capital gain equals the capital proceeds minus the cost base. The estate must calculate capital gains tax on the sale of the vacant land. Because the dwelling was destroyed after death, any destruction does not reset the cost base or create a separate CGT event (unless insurance proceeds for destruction were received but that is not the situation for the Property). The estate is generally eligible for the 50% CGT discount if the asset was held for more than 12 months (including the deceased's ownership period). The capital gain or loss on sale is calculated by applying the 50% CGT discount as the Property was purchased before introduction of the CGT regime.