Private ruling: Deceased estates - Commissioners Discretion
Date of advice: 8 December 2025
Published: 27 January 2026
Ruling period: Year ended 30 June 20XX
Date scheme commenced: XX XXXX 20XX

Ruling: Q1: Is the first element of the cost base in your hands the market value of the property at the date the deceased died? | A1: Yes. | Q2: Will the Commissioner grant an extension to the two‐year time period under section 118‐195 of the Income Tax Assessment Act 1997 (ITAA 1997) and disregard any capital gain on the insurance proceeds received for the destruction of the dwelling? | A2: Yes. | Q3: Is the discretion under subsection 118-195(1) of ITAA 1997 to allow an extension of the two-year period for the disposal of a dwelling available where the property disposed of is vacant land? | A3: No.

Relevant facts and circumstances: After XX XXX 20XX, the deceased solely purchased the dwelling situated at the property. The property is less than 2 hectares. The deceased treated the property as their main residence and did not use it to produce income. The deceased had resided in the property with their de facto spouse, Person A, and their minor children. The deceased also had another child from a previous relationship who was over the age of 18. This child resided with their other parent and not with the deceased. On XX XXXX 20XX, the deceased passed. The deceased did not own any other properties at the time of passing. The deceased passed intestate. There was ambiguity as to whether the deceased and Person A were still in a relationship at the deceased's death as the deceased's parent, Person B stated that the deceased had advised them on numerous occasions that they were no longer together however were living under the one roof separately. Person A was not capable of attending to the administration of the estate due to issues which impacted their ability and capacity to undertake the role. The only other legal next of kin the deceased had was their adult child. This child also did not have the capacity to administer the deceased's estate. The deceased's parents were becoming increasingly concerned that not only was the mortgage on the property not being paid, but the dwelling could not be insured as no insurer would insure the property without an Administrator or LPR being authorised to administer the estate. Person B believed they were the only other person that could administer the estate and sought formal authority from the Supreme Court to administer it. On XX XXXX 20XX, Person A authorised Person B to apply for letters of administration (LOA) for the estate by providing written authority to Person B's lawyers, who were assisting them with the application. On XX XXXX 20XX, Person B's lawyers lodged a request for an urgent Letters Ad Colligenda Bona order to the Supreme Court to deal with just the property at that time. Person B's intention was to sell the property so that the mortgage could be discharged in full. Once the property was sold, they would then apply to the Courts for full LOA and seek to fully administer the estate accordingly. On XX XXXX 20XX, the Supreme Court dismissed this application on the grounds that as the estate consisted of a single asset (the property), a limited order was not appropriate. The Courts also had concerns that there may have been a conflict of interest due to Person B's purported loan to the deceased for the property. The Court concluded that Person B had no other interest in the estate and had no standing to lodge an application to administer the estate. The Courts did, however, recognise the need to finalise the administration of the estate and provided Person B with alternatives for the estate to be administered, which included referring the matter to an independent administrator or you. On XX XXXX 20XX, you were approached to take carriage of this matter and administer the estate accordingly. You commenced your due diligence to determine whether you should take the matter on. You also sent a letter to Person A to seek confirmation as to their relationship status with the deceased at the time of his death and if it was a domestic relationship with him. They would need to complete an affidavit attesting to this however no response was received for this. In XXXX 20XX, after receiving legal advice you agreed to take on the estate administration. On XX XXXX 20XX, you commenced sending letters to interested parties to advise of your intention to administer the estate and for them to update their records accordingly. You also completed a title search on the property and organised insurance on the property. For a period, you were undertaking the necessary task to apply for the LOA. On XX XXXX 20XX, you were granted LOA by the Supreme Court. For a period, you attempted to remove Person A from the property. Along with Person A, there had been other occupants residing at the property rent‐free and without your permission since the deceased's death. On XX XXXX 20XX, you received a letter from Person A's lawyers seeking agreement of terms suggested by them. This included giving Person A XX days to vacate the property. On XX XXXX 20XX, you wrote to Person A's lawyers agreeing to their terms. On XX XXXX 20XX, you were advised that the dwelling on the property had been burned down earlier that day. On XX XXXX 20XX, you commenced an insurance claim for the building and contents loss. The insurance report stated that due to the intensity of the fire, the dwelling had been reduced to rubble. On XX XXXX 20XX, you received the proceeds from the insurer for the contents claim. The claim regarding the building was still being processed by the insurers. On XX XXXX 20XX, the insurers offered you an amount to cover the destruction of the dwelling. On XX XXXX 20XX, you accepted the insurer's offer. On XX XXXX 20XX, you requested your internal conveyancing team to have a caveat that had been lodged against the property by Person A removed and to then discharge the mortgage and complete the application so you could commence the sale process for the land once the remains of the dwelling and the debris was cleared by the contractors engaged by the insurers. On XX XXXX 20XX, you received the insurance proceeds for the dwelling. On XX XXXX 20XX, you received an email from the contractors that the demolition of the dwelling and the debris removal would commence on the XX XXXX 20XX. On XX XXXX 20XX, you received an email from the contractors to advise there was a delay in obtaining a demolition permit and that the demolition would happen later that same week. Once the land was cleared of all debris, you engaged your internal property team to commence the sales process for the land on XX XXXX 20XX. On XX XXXX 20XX, the mortgage on the property was discharged however the caveat was still on the title as you did not know the whereabouts of Person A to request them to remove the caveat. You then sought legal advice regarding the caveat removal and based on this advice, requested their internal conveyancing team to lodge a request for the removal of the caveat on the property with the Land Titles Office (LTO). This application was completed and lodged with the LTO. On XX XXXX 20XX, you were notified that the caveat on the property title had been removed. On XX XXXX 20XX, you requested a sworn valuation on the property so that the current market value of the property and the reserve price for the sale could be set. On the same day, you engaged the services of a real estate agent to sell the land. On XX XXXX 20XX, the property was advertised for sale. On XX XXXX 20XX, you received an offer for the land which was below the reserve price set for the property and had unfavourable terms. The purchasers wanted a settlement period of XX months conditional on them selling their current property. For these reasons, you declined this offer. On XX XXXX 20XX, you received another offer from the same purchasers, this time for an amount more in line with the market value of the property. Whilst the settlement period was still XX months, the contract was no longer conditional to the purchasers selling their current property and as such, you accepted this offer. On XX XXXX 20XX, a contract of sale was entered for the vacant land. On XX XXXX 20XX, settlement occurred.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 104-20 | Income Tax Assessment Act 1997 section 110-25 | Income Tax Assessment Act 1997 Division 115 | Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1997 section 128-10 | Income Tax Assessment Act 1997 section 128-15 | Income Tax Assessment Act 1997 item 3 in the Table in subsection 128-15(4)

Reasons for decision: Summary: The property was the deceased's main residence and not income-producing at the time of death. Item 3 in the Table in subsection 128-15(4) of the Income Tax Assessment Act 1997 applies that, the first element of your cost base and reduced cost base is its market value on that date of death. | Detailed Reasoning - Detailed reasoning: All future legislative references are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise stated. Section 128-10 states that when someone dies, a capital gain or loss from a capital gains tax (CGT) event that results for a CGT asset you owned just before dying is disregarded. Section 128-15 sets out the rules on what happens if a CGT asset you owned just before dying devolves to your LPR, for example the executor of a Deceased Estate, or passes to a beneficiary in your estate. Subsection 128-15(2) states that the LPR is taken to have acquired the asset on the day the deceased died. The table in subsection 128-15(4) shows modifications to the cost base and reduced cost base. The property was the deceased's main residence and not income-producing at the time of death. Item 3 in the Table in subsection 128-15(4) applies that, the first element of your cost base and reduced cost base is its market value on that date of death. | Summary: Yes. | Detailed Reasoning - Commissioner's discretion: A capital gain or capital loss may be disregarded where a CGT 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. The deceased acquired the property after 19 September 1985 and used it as their main residence until just they passed away. The property was not used to produce assessable income. After the deceased passed away, you owned the property as trustee of the estate. Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income may be assessable under another provision are called statutory income. Receipt of a lump sum insurance payment may give rise to a capital gain (statutory income). Part 3-1 of the ITAA 1997 contains the capital gains and capital losses provisions. You make a capital gain or capital loss if a CGT event happens. CGT event C1 under subsection 104-20(1) happens if a CGT asset you own is lost or destroyed. The time of the CGT event as determined by subsection 104-20(2) will be when you first become aware of the loss or destruction; or if you receive compensation, when you receive the compensation. The words 'lost' and 'destroyed' in subsection 104-20(1) are not defined in the Act and they take their ordinary meaning. Taxation Determination TD 1999/79 Income Tax: capital gains: does the expression 'lost or destroyed' for the purposes of CGT event C1 in subsection 104-20(1) of the Income Tax Assessment Act 1997 apply to: (a) a voluntary 'loss' or 'destruction'? (b) intangible assets?, provides in paragraph 4 and 6: 4. The word 'destroyed' in its context in subsection 104-20(1) contemplates both voluntary and involuntary actions. The Macquarie Dictionary, 3rd ed, defines 'destroyed' as '1. to reduce to pieces or to a useless form; ruin; spoil; demolish. 2. to put an end to; extinguish'. The word in its context in CGT event C1 applies if a CGT asset is destroyed in an involuntary occurrence, such as a natural disaster, or if it happens by the actions of others over which the taxpayer has no control. It also applies if a CGT asset is destroyed in a voluntary occurrence - if, for example, it happens due to a deliberate act of the taxpayer (e.g., a taxpayer might demolish a building in the course of redeveloping a property). 6. Neither of the words 'lost' or 'destroyed', in the context of CGT event C1, contemplates damage to an asset that does not amount to the asset being lost or destroyed. A CGT asset must be wholly lost - not just damaged - or wholly destroyed - not just damaged - for the circumstances to be covered by CGT event C1. This is not to say, however, that CGT event C1 cannot happen to a discrete and identifiable part of a CGT asset - being a CGT asset in its own right - if the part is wholly lost or wholly destroyed and not just damaged. CGT event C1 occurred when the dwelling was destroyed. The dwelling was destroyed, and the insurance proceeds were received more than two years after the deceased's death. Therefore, you require the Commissioner's discretion under section 118-195 to extend the two-year period to be eligible for an exemption for the insurance proceeds. Practical Compliance Guideline PCG 2019/5 Capital gains tax and deceased estates - the Commissioner's discretion to extend the 2-year period to dispose of dwellings acquired from a deceased estate outlines the factors that the Commissioner will take into consideration when deciding whether to exercise the discretion to extend the 2-year period. Having considered the following circumstances and the relevant factors: • the deceased died intestate • there was uncertainty over who could apply for letters of administration and • you had difficulty removing from the property a person who claimed to have been the deceased's de facto spouse. The Commissioner will allow an extension of time to exempt any capital gain received from the insurance proceeds from the C1 event which happened to the dwelling. Further information about the Commissioner's discretion can be found by searching ato.gov.au for QC 66057. | Summary: No. It is a requirement of section 118-195 that there is a capital gain or loss made from a CGT event that happens in relation to a dwelling. | Detailed Reasoning - Detailed reasoning: It is a requirement of section 118-195 that there is a capital gain or loss made from a CGT event that happens in relation to a dwelling. Subsection 118-115(1) provides that a dwelling includes a unit of accommodation that is a building or is contained in a building and consists wholly or mainly of residential accommodation, and the land immediately under the unit of accommodation. The provision does not apply to vacant land even if it previously contained a dwelling which was the deceased's main residence. There is no exception within section 118-195 which allows the discretion to be applied in situations where the dwelling has been destroyed. Therefore, the Commissioner cannot grant a longer period to sell the vacant land and disregard the capital gain or loss under section 118-195 as there is no dwelling. As previously stated, the CGT C1 event happened because the dwelling was destroyed. Your ownership interest in the dwelling ended when the dwelling was destroyed. Your subsequent ownership interest in the remaining vacant land continued until it was sold. When the vacant land was sold, CGT event A1 occurred and a capital gain or capital loss will need to be determined. The dwelling and land were originally purchased by the deceased as a single CGT asset after 20 September 1985. In this situation, the dwelling was destroyed, and insurance proceeds were received. A replacement asset was not constructed, and the land was sold as a vacant block. For CGT purposes, you need to split the original cost base between: • Dwelling (the asset destroyed under CGT event C1); and • Land (still owned and later sold under CGT event A1). As the dwelling was the main residence of the deceased and not used to produce income prior to their death. A market valuation report for the land and dwelling should be completed at the deceased's date of death and then apportionment should be made under section 112-30. You will also be entitled to the 50% CGT discount under division 115.