Private ruling: Deceased estate
Date of advice: 14 July 2025
Published: 15 September 2025
Ruling period: Year ended XX XXX 20XX
Date scheme commenced: XX XXX 20XX

Ruling: Q1: Will the Commissioner exercise his discretion under section118-195 of the Income Tax Assessment Act 1997 to allow an extension of time for the beneficiary to dispose of their XX% share of the property and disregard the capital gain or capital loss made on the disposal? | A1: No.

Relevant facts and circumstances: The property is located at Address A. The property is less than 2 hectares. On XX XXX 19XX the deceased acquired the property as joint tenant with their spouse. On XX XXX 19XX the deceased acquired their spouse's share of the property under a divorce settlement. On XX XXX 20XX the deceased passed away. The property was the deceased's main residence at the time of their passing and was not being used to produce assessable income. Under the will: • the deceased's sibling Person A was appointed as executor of the estate • the beneficiaries of the estate were the deceased's children Person B and Person C • under clause X, a life tenancy was granted to the deceased's defacto spouse Person D. This life tenancy was transferable should Person D make a written request for this. On XX XXX 20XX probate was granted to Person A. On XX XXX 20XX the title of the property was transferred to Person A as legal personal representative of the estate. In XXX 20XX Person D decided they wished to move and requested the sale of the property to fund this per clause X of the will. In XXX 20XX the property was listed for sale. On XX XXX 20XX Person D passed away, ending the life tenancy. In XXX 20XX the property was removed from the market. On XX XXX 20XX the property was leased out. The intent was to lease the property for X-XX months but then the covid pandemic began. Sometime in 20XX the beneficiaries met with a real estate agent about selling the property. Conversations continued throughout 20XX and 20XX. On XX XXX 20XX the title of the property was transferred to Person B and Person C as tenants in common. In XXX 20XX a real estate agent was engaged to sell the property. On XX XXX 20XX the lease on the property ended. In XXX 20XX the property was listed for sale by auction. On XX XXX 20XX a contract of sale was signed. On XX XXX 20XX settlement of the property took place.

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

Reasons for decision: Summary: No. The Commissioner will not exercise his discretion under section 118-195 of the ITAA 1997 and allow an extension of time to the two-year period relating to the disposal of the property. The beneficiary of the deceased estate is not exempt from tax on any capital gain made on the disposal of the property pursuant to section 118-195 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Section 118-195 of the ITAA 1997 states that if you own a dwelling in your capacity as a beneficiary of a deceased estate, or you owned it as the trustee of a deceased estate, that you are exempt from tax on any capital gain made on the disposal of the property if: • The property was acquired by the deceased before 20 September 1985, or • The property was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income, and • Your ownership interest ends within 2 years of the deceased's death. The Commissioner has discretion to extend the two-year time period where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death. 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 outlines the factors that the Commissioner will consider when determining whether to exercise his discretion to extend the two-year period under section 118-195 of the ITAA 1997. This discretion may be exercised in situations where: • the ownership of a dwelling or the will is challenged • a life or other equitable interest given in the will delays the disposal of the dwelling • the complexity of a deceased estate delays the completion of administration of the estate • settlement of the contract of sale of the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control • restrictions on real estate activities imposed by a government authority in response to the COVID-19 pandemic These examples are not exhaustive. They provide guidance on what factors the Commissioner would consider reasonable to exercise his discretion to extend the two-year period. Generally, the Commissioner will allow a longer period where the sale of the dwelling could not be settled within two years of the deceased's death due to reasons beyond your control. Consideration is given to whether the property was listed for sale as soon as practically possible after the resolution of any of these factors, and if the sale was completed within 12 months of the property being listed for sale. PCG 2019/5 also outlines factors that would weigh against the Commissioner allowing a longer period. Where these factors play a role in any delay in disposing of the property, the Commissioner would not consider discretion to be appropriate: • waiting for the property market to pick up before selling • waiting for refurbishment of the dwelling to improve sale price • inconvenience on the part of the trustee or beneficiary to organise the sale of the dwelling, or • unexplained periods of inactivity by the executor in attending to the administration of the estate. Whether the Commissioner will exercise his discretion under subsection 118-195(1) of the ITAA 1997 will depend on the facts of each case. The facts that caused the delay in disposing of the property are more important than the length of the delay. | Detailed Reasoning - Application to your circumstances: In your case the deceased's Will granted a life tenancy to their defacto spouse. This tenancy was transferrable. A life tenancy granted by the will of the deceased is consistent with the factors outlined in PCG 2019/5 that could see the discretion exercised, depending on other factors. The defacto spouse remained at the property until in XXX 20XX they requested sale of the property to fund the purchase of a unit. The property was listed on the market in XXX 20XX although an initial auction was unsuccessful. The defacto spouse suffered a medical episode in XXX 20XX, passing away in XXX, 2 years after the passing of the deceased. With their passing the life tenancy granted to them under clause X of the will ended. Consistent with paragraph 12 of PCG 2019/5, the life tenancy prevented the disposal of the property for the first 2 years following the passing of the deceased. The passing of their defacto spouse however, meant that this circumstance was now resolved, and the executor of the estate was free to sell the property. Paragraph 11 of PCG 2019/5 details that for the Commissioner to consider exercising discretion, the dwelling must be listed for sale as soon as practically possible after the resolution of such circumstances. At the time of the passing of the deceased's defacto spouse, the property was already on the market. However, the decision was made to remove the property from the market in XXX 20XX, and instead lease it out X months later. This period was approximately X months prior to the first covid lockdown experienced by the state. The property was then not relisted for sale until XXX 20XX, nearly X years later. It sold in XXX 20XX with settlement occurring in XXX. Whilst the delay experienced in the first two years following the deceased's death was the result of the life tenancy granted by the will, the additional delay of X years and X months was not caused by any factor outside of your control. Having considered the relevant facts, we will not apply the discretion under subsection 118- 195(1) to allow an extension to the two-year time limit. It is the Commissioner's view that the delay in disposing of the property was due to a conscious decision to lease the property, and that this delay was not outside of your control. The Commissioner has not exercised the discretion to extend the two-year period to dispose of a dwelling under section 118-195. Therefore, any capital gain made on the property from the date the deceased passed away until the property is disposed of will be taxable. That is, the first element of your cost base for the property is its market value on the deceased's date of death.