Private ruling: Deceased estate - two-year discretion
Date of advice: 23 January 2026
Published: 16 March 2026
Ruling period: 30 June 20XX
Date scheme commenced: 01 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time for you to dispose of your ownership interest in the dwelling and disregard the capital gain or capital loss you made on the disposal? | A1: No.

Relevant facts and circumstances: On XX XXX 19XX, Person A (the deceased) inherited a family home at XXX (the property), from a relative. The property was built in approximately 19XX. The deceased died on XX XXX 20XX. The property was the deceased's main residence at date of death, and it was not used to produce income. The property contains a dwelling and is less than 2 hectares in size. The deceased's Will, dated XX XXX 20XX, appointed the Public Trustee as the executor and trustee of the Will. The Will also nominated the deceased's child, Person B, as the sole beneficiary of the estate with 100% entitlement. On XX XXX 20XX, probate of the deceased's Will was granted to the Trustee and Guardian (TG), as the named executors. Person B (the beneficiary) lived at the property as their main residence since 19XX. In 20XX, the TG as executor, advised the beneficiary of the 2-year discretion and that capital gains tax (CGT) could apply if the property was not sold within a reasonable period. The beneficiary was aware of this advice. The beneficiary has stated that delays in vacating the property were due to COVID-19 restrictions and a medical condition. Initially, the beneficiary advised the TG that they intended to pay the mortgage so the property could be transferred into their name. The beneficiary indicated that they had made several attempts to obtain a loan or refinance. However, in or around XXX 20XX, it was confirmed that the beneficiary was unable to service the loan. Following this, the TG informed the beneficiary that the property was likely to be sold. On XX XXX 20XX the beneficiary stated they were in hardship. The TG agreed to send a letter in order to get an advance. On the same day, a file was extracted to property section to sell the house but did not proceed as the beneficiary was still living in the property. On XX XXX 20XX, an advance payment was provided to the beneficiary to assist with removalist costs, rent, and other expenses. On XX XXX 20XX, the TG issued the beneficiary with a Notice to Vacate, requiring the beneficiary to leave the premises by XX XXX 20XX. On XX XXX 20XX, the beneficiary requested a six-month extension to vacate the property due to medical issues and supplied a medical report. The TG spoke with the beneficiary's doctor, who confirmed the beneficiary had medical issues. Given these circumstances, the TG approved an extension. On XX XXX 20XX, a submission was made to grant the beneficiary a six-month extension to vacate the property. On XX XXX 20XX, the beneficiary advised the TG about their medical issues, and this made it difficult to lift heavy items or pack their belongings. The beneficiary undertook to provide a medical letter confirming their condition. The TG provided an update on the estate and informed the beneficiary that the extension request remained under management review. On XX XXX 20XX, the beneficiary advised they were still attempting to obtain a medical letter confirming the medical issues. On XX XXX 20XX, the TG noted that, despite ongoing discussions since XX XXX 20XX, the beneficiary had made no progress towards relocating due the health issues. The six-month extension was due to expire on XX XXX 20XX. On XX XXX 20XX, the TG reviewed the mortgage situation and contacted the Bank to confirm their position regarding the mortgage repayments. On XX XXX 20XX, the beneficiary advised the TG that they were ready to move but required additional time until XXX. The beneficiary intended to obtain accommodation and removalist quotes and expressed interest in appointing an agent to sell the property. The TG informed them that the file could only be transferred to the Property Section once the property had been cleared. On XX XXX 20XX, the Bank advised that, as at XX XXX 20XX, if the property could not be sold within a reasonable period, it reserved its right to commence mortgage enforcement. Correspondence was prepared to advise the beneficiary of the Bank's position and the implications of foreclosure, as well as the process should the TG conduct the sale. The beneficiary separately advised that they were seeking quotes for accommodation and removalists and may require a further advance. As the sale appeared inevitable and funds would likely be required for the relocation, the TG recommended approval of a debit of up to $XXX against the estate. On XX XXX 20XX, the TG approved the estate debit. On XX XXX 20XX, the TG confirmed that there were no available funds in the estate to meet the mortgage obligations and that the property would need to be sold by the Bank to satisfy the debt. A timeframe for the sale could not be provided. On XX XXX 20XX, the TG advised the beneficiary that the Bank had contacted the TG's Legal Department regarding mortgage enforcement and was taking steps to obtain possession of the property. The beneficiary confirmed he remained in the house and did not intend to relocate. The beneficiary also confirmed they had been in contact with the Bank regarding the matter. On XX XXX 20XX, the Bank filed a Statement of Claim seeking possession of the property and served the TG with the same. The matter was listed in the Supreme Court relating to the mortgage default. The TG instructed XXX Legal to act in the possession proceedings on XX XXX 20XX. On XX XXX 20XX, the TG received default documentation from the Bank. The file continued to be managed by the TG Legal until the Bank took over. On XX XXX 20XX, the TG sought approval to instruct XXX Legal to consent to the Bank obtaining judgment for possession and to the sale of the property. On XX XXX 20XX, the beneficiary advised they had spoken with the Bank and did not intend to relocate until the following year. On XX XXX 20XX, XXX Legal continued to act in relation to the matter. On XX XXX 20XX, the Bank's Legal Department issued a letter directing the beneficiary to vacate the property by XX XXX 20XX. The beneficiary advised they were experiencing hardship, and on XX XXX 20XX, the TG increased the approved debit to assist with storage, removalist costs, and temporary accommodation. On XX XXX 20XX, the beneficiary vacated the property. On XX XXX 20XX, the property was sold, with settlement occurring on XX XXX 20XX.

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 trustee 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 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 17 of 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 your case, we consider as favourable factors, • Ill-health of the beneficiary. • Difficulty in progressing the sale. The TG's property team policy requires that the beneficiary vacate the property before the property team can proceed with the sale. • COVID lockdown and travel restrictions. We also considered: • The beneficiary was aware of the two-year discretion and CGT could apply if the property was not sold within a reasonable period. • While we acknowledge that there were some complexities regarding the administration of the deceased's estate, the delays in estate administration were caused by the beneficiary who did not take reasonable steps to vacate the property for the property to be sold. • The beneficiary remained living in the dwelling, after receiving advance payments to assist with relocation. 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 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. The cost of any repairs can also be included in the cost base of the property. You are also entitled to the 50% CGT discount in relation to the property.