Private ruling: Commissioner's discretion - deceased estate
Date of advice: 8 October 2025
Published: 24 November 2025
Ruling period: 30 June 202X
Date scheme commenced: 1 July 202Y

Ruling: Q1: Will the Commissioner exercise his discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two-year period to dispose of the dwelling at Property 1 which was acquired on 14 March 2001? | A1: No. The Commissioner will not exercise his discretion under section 118-195 ITAA 1997 as the provision does not apply. | Q2: What is the cost base of the dwelling at Property 1, and How is the capital gain calculated? | A2: The cost base is the deceased's cost base at the date of their death. The capital gain is the amount of the capital proceeds received on sale of the property minus the cost base. | Q3: Will the Commissioner exercise his discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two-year period to dispose of the dwelling at Property 2 which was acquired in 1955? Yes. The Commissioner will exercise his discretion to extend the two-year period to dispose of the dwelling at Property 2.

Relevant facts and circumstances: On XX XXXXX 201X parent's sibling passed away, and your parent inherited the majority of his estate which has still not yet been finalised. Your parent (the 'deceased') passed away on X XXXX 20XX. On X XXXX 20XX your maternal parent's sibling passed away. Following this, your parent passed away. A copy of the deceased's will and Codicil appointed two of your siblings as Executors of her Estate. The deceased owned two adjoining but separate properties at Property 1 and Property 2. These two properties had been appraised by XXXX Real Estate on in 20XX when they were valued between $XXX,XXX and $YYY,YYY. Property 1 Property 1 was purchased by your late sibling in 19XX who passed away in 20XX. Property 1 was bequeathed to the deceased through your sibling's will on XX XXXXX 20XX and was rented out continuously by XX XX Real Estate during the deceased's ownership until it was sold in 20XX. The deceased bequeathed Property 1 to their four children each having a 25% share. Property 2 Property 2 was purchased by the deceased in pre-19XX. You hold current documentation including your birth certificate which state that the address of your family home is Property 2. Property 2 was the main residence of the deceased from 19XX until X XXXX 20XX. Property 2 was then rented until your parent's death on X XXXXX 20XX and then rented following that until it was sold on XX XXXXX 20XX. Delays in sale You advised that the passing of your maternal parent's sibling and your parent resulted in delays in the sale of Property 1 and Property 2 due to administrative issues. The deceased's will was contested in 20XX for several months. In 20XX solicitor XXXX acted for you and filed an affidavit for family provision of the deceased estate. One of the Executors was served with an affidavit and the second Executive was attempted to be served with an affidavit on three occasions. On XX XXXXX 20XX solicitor XXXX XXXXXXX of XXXXX Law Firm, filed an affidavit of service for two of your siblings. Mediation took place and consent orders were signed on XX XXXX 20XX. The consent orders were for two of your siblings to purchase your share of the estate, consisting of farming land while attempts to negotiate the houses at Property 1 and Property 2 were met with resistance by both parties. Probate was granted on XX XXXXX 202X for both executors. On XX XXXXX 20XX, Property 1 and Property 2 were transferred into the names of yourself, as well as all your siblings. Both properties continued to be rented. In 20XX, negotiations between yourself and your four siblings took place to sell each of your shares of the two properties - however, agreement could not be made. On XX XXXXX 20XX, one of your siblings contacted XXXX on behalf of all siblings (including yourself) to sell Property 1 and Property 2. On XX XXXXX 20XX, the sale contracts were signed by all parties. Further delays were encountered due to the purchaser wanting vacant possession of the houses which were both tenanted. This was a lengthy process due to legal implications. Additionally, negotiations required that an overseas investor was to be involved. On XX XXXXX 20XX, settlement occurred for Property 1 and Property 2.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1997 section 128-15 | Income Tax Assessment Act 1997 section 115-25

Reasons for decision: Summary: No. The Commissioner's discretion does not apply as the dwelling at Property 1 was rented for the whole period of ownership. For a post CGT property, the property must have been the deceased's main residence to be eligible for the full main residence exemption under 118-195ITAA 1997. | Detailed Reasoning - Detailed reasoning: Section 118-110 ITAA 1997 provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. To qualify for full exemption the dwelling must have been your main residence for the whole period you owned it, the ownership period, and must not have been used to produce assessable income. Section 118-195 ITAA 1997 extends the main residence exemption to inherited dwellings, any capital gain or capital loss made on sale of the property can be disregarded, if certain conditions are met. Additionally, if an ownership interest in the principal place of residence passes to an individual beneficiary or trustee within two years of the deceased's death, any capital gain or loss made on the disposal of the property is disregarded. Section 118-195 ITAA 1997 in the table at column 2, paragraph 1 states that for the main residence exemption to apply where the deceased acquired ownership interest on or after 20 September 1985, the dwelling must have been the deceased's main residence at the time of death, and not used to produce assessable income. If this condition is met column 3, paragraph one provides that the exemption applies if your ownership interest ends within two years of the deceased's date of death, or a longer period allowed by the Commissioner. | Detailed Reasoning - Your situation: In your case, Property 1 was not the deceased's main residence and was rented during the ownership period of the deceased, and subsequently up until the time it was sold and settled. | Detailed Reasoning - ATO response: As none of the conditions in section 118-195 ITAA 1997 have been met, the main residence exemption does not apply to Property 1. | Detailed Reasoning - Question 2: What is the cost base of the dwelling at Property 1? | Summary: The cost base for a CGT asset, including property, is set out in section 110-25 of the Income Tax Assessment Act 1997. It consists of five elements, which together determine the amount to subtract from the sale proceeds when calculating a capital gain. | Detailed Reasoning - Detailed reasoning: The five elements of the cost base are money or property given to acquire the asset; incidental costs, which Includes costs such as stamp duty, valuation fees, agent commissions, borrowing expenses, conveyancing costs and tax advice; balancing adjustment amount; capital Improvements - expenditure to increase or preserve the asset's value, or to install or move it; title costs incurred to establish, preserve, or defend ownership or rights over the asset. The cost base excludes depreciation and capital works deductions as you can claim these as a tax deduction. | Detailed Reasoning - Your situation: You inherit your parent's cost base which is the market value of Property 1 on XX XXXXX 20XX. Since the property was income-producing (a rental property) during the entire time your parent owned it, the market value substitution rule at their date of death does not apply. Your parent inherited the property post-CGT (after 1985) and their child (your sibling) acquired it pre-CGT (before 1985). Your parent's cost base is therefore market value at their child's date of death. The market value substitution rule cannot be used at the time of the transfer from the deceased estate to you and your siblings. How is the capital gain calculated? Capital gain | Summary: Capital Gain = sale proceeds of the asset minus the cost base. CGT assets include real estate acquired on or after 20 September 1985. CGT events are those transactions that occur to a CGT asset that result in you either making a capital gain or capital loss. You make a capital gain if your capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if you receive more for an asset than you paid for it. You make a capital loss if your reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset, for example, if you receive less for an asset than you paid for it. Capital gains tax is not a separate tax - it forms part of your assessable income and is taxed at your marginal tax rate. | Detailed Reasoning - Detailed reasoning: In accordance with Income Tax Assessment Act 1997 section 115-25, if the asset was held for 12 months or more, beneficiaries may be eligible for a 50% CGT discount. Your parent held Property 1 since before 1985 until they passed away. | Detailed Reasoning - Your situation: The following amounts were identified on documents that you sent to the ATO with your private ruling application. • sale price of Property 1 was $XXX,XXX - this amount is identified on the Authority to Exchange Contracts document that you provided with the ruling application • your share of 25% was $XXX,XXX which was paid to you - this amount is identified on the Costi Legal document which you provided along with the private ruling application | Detailed Reasoning - Calculation of capital gain and capital gains tax: Step 1 The capital gain is equal to capital proceeds minus the cost base. Step 2 As your parent held Property 1 for more than 12 months, you are eligible for the 50% individuals CGT discount to apply. Step 3 The net capital gain is added to your assessable income and taxed at your marginal tax rate. Note that as we have not been provided with the cost base for Property 1, we cannot determine the capital gain on sale of Property 1, and therefore cannot determine what your share of the capital gain is. | Detailed Reasoning - Question 3: Will the Commissioner exercise his discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two-year period to dispose of the dwelling at Property 2 acquired pre-1985? | Summary: Yes. The Commissioner will exercise his discretion to extend the two-year period to dispose of the dwelling, includingthe period that the property was rented from the date of your parent's death to the date of settlement. | Detailed Reasoning - Detailed Reasoning: For a property acquired pre-CGT to qualify for a full CGT exemption under the main residence rules for inherited property, section 118-195 ITAA 1997 states at least one of the following must be satisfied: The property was either: • Sold within 2 years of the deceased's death, or a longer period allowed by the Commissioner, or • Used as the main residence by a qualifying individual (e.g., spouse, beneficiary, or someone with a right to occupy under the will) from the date of death until settlement | Detailed Reasoning - Your situation: Property 2 was the deceased's main residence from the date of purchase in 20XX until 20XX. Property 2: • It was not sold within 2 years of death. • No qualifying person (e.g. spouse, beneficiary, or someone with a right to occupy) lived in it as their main residence after your parent's death. Practice 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, explains how the CGT main residence exemption applies to dwellings acquired from a deceased estate and when the Commissioner can extend the 2-year period in which to sell the deceased's property. | Detailed Reasoning - Reasons provided for delays: You advised that there were several reasons for the delay in sale of Property 2 for which you have valid and documented delays including: • Several timely administrative delays as a result of the passing of your maternal parent's sibling and then your parent. • The deceased's will was contested between XX XXXX 202X and XX XXXX 202Y. • On XX XXX 202X your solicitor filed an affidavit for family provision of the deceased estate and following this, two executors were served or attempted to be served. • On 1 XXX 202X an affidavit of service was filed for two beneficiaries. • Mediation took place and consent orders were signed for two beneficiaries to purchase your share of the estate in relation to farming land. • Attempts to negotiate were met with resistance by the parties involved. • Probate was granted later that year for the executors. • In the following year, Property 2 was transferred into the names of the beneficiaries and continued to be rented. • Two months later, negotiations between yourself and your four siblings took place to sell each of your shares of the two properties - agreement could not be made as the land had been declared a high-rise development area which meant that the market value of the properties were more valuable than initial appraisals two years earlier. • Shortly after, XX Real Estate was contacted to sell Property 2 and several months later the sale contract was signed by all parties. • Further delays were then encountered due to the purchasers of the property wanting vacant possession of the house which was tenanted at the time of purchase - this was a lengthy process due to legal implications and the fact that negotiations required that an overseas investor was to be involved. • Earlier the following year, settlement occurred. Circumstances that took more than 12 months to resolve Paragraph 12 PCG 2019/5 One or more of the following circumstances must have taken more than 12 months to address • the ownership of the dwelling, or the will, is challenged • a life tenancy or other equitable interest given in the will delays the disposal of the dwelling • the complexity of the deceased estate delays the completion of administration of the estate • settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of your control, or • restrictions on real estate activities imposed by a government authority in response to the COVID-19 pandemic. Paragraph 14 PCG 2019/5 • In considering whether to extend the 2-year period, we weigh up all factors (both favourable and adverse) having regard to the facts and circumstances of the case. Paragraph 17 PCG 2019/5 Other factors that may be relevant to the exercise of our discretion (but are not relevant for the safe harbour) include but are not limited to: • the sensitivity of your personal circumstances and of other surviving relatives of the deceased • the degree of difficulty in locating all beneficiaries required to prove the will • any period the dwelling was used to produce assessable income, and • the length of time you held the ownership interest in the dwelling. • shares of the two properties - agreement could not be made as the land had been declared a high-rise development area which meant that the market value of the properties were more valuable than initial appraisals on 16 February 20XX. • On 28 August 20XX L J Hooker Real Estate was contacted to sell Property 2 and several months later on 18 March 20XX, the sale contracts were signed by all parties. • Further delays were then encountered due to the purchasers of the properties wanting vacant possession of the houses which were both tenanted at the time of purchase - this was a lengthy process due to legal implications and the fact that negotiations required that an overseas investor was to be involved. • On 29 April 20XX, settlement occurred for Property 2, almost 3 years and one month following the deceased's date of death. | Detailed Reasoning - ATO response: Property 2 was sold and settled within the safe harbour period, but you requested a private ruling. The Commissioner's discretion will be granted as Property 2 could not be sold and settled within 2 years of the deceased's death due to reasons beyond your control and that existed for a significant portion of the first 2 years, and the property was disposed of as soon as practicable after the delay was resolved. Any capital gain or loss on sale will therefore be disregarded.

Question 1: Will the Commissioner exercise his discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two-year period to dispose of the dwelling at Property 1 which was acquired by the deceased on XX XXXXX 20XX?