Private ruling: Deceased estate
Date of advice: 19 December 2025
Published: 9 February 2026
Ruling period: 30 June 20YY
Date scheme commenced: DD MM 20YY

Ruling: Q1: Are you eligible for a partial exemption on the disposal of your ownership interest in the dwelling (house) under subsection 118-200(1) of Income Tax Assessment Act 1997 (ITAA1997) that devolved to the Estate? | A1: Yes. | Q2: Will there be any Capital Gains Tax (CGT) implications on the land acquired by the deceased before 20 September 1985 inherited by the Estate? | A2: Yes.

Relevant facts and circumstances: The deceased passed away on DD MM 20YY. The probate for the property was granted on DD MM 20YY. The land for the property was acquired on the DDMM 19YY. The house was contracted for construction post-CGT on DD MM19YY. The house was completed on DD MM 19YY. The family moved into the house on DD MM 19YY. The family moved out of the house on DD MM 20YY. This was the deceased's principal place of residence until the DD MM 20YY. MM 20YY it was decided the property was to be sold. The deceased's spouse had X major surgeries in MM 20YY and MM 20YY, this required you to be her carer during the period. MM 20YY you advised the tenants to move out of the property. Tenants moved out in MM 20YY. You had the property on the market in MM 20YY. The property was due for settlement on DD MM 20YY. The contract fell through due to the pest report. The pest reports state previous termite activity and that the building was compromised. Once the repair for termite damage was rectified the property was placed back on sale on DD MM 20YY. The settlement for property fell through once again, due to the buyer changing their mind. You placed the property back on the market on DD MM 20YY. Settlement for the property took place on DD MM 20YY.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 104-10(5) | Income Tax Assessment Act 1997 Division 108 | Income Tax Assessment Act 1997 subsection 108-70(2) | Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1997 section 118-200 | Income Tax Assessment Act 1997 subsection 118-200(1) | Income Tax Assessment Act 1997 section 128-10 | Income Tax Assessment Act 1997 section 128-15

Reasons for decision: Detailed Reasoning - Pre-CGT land: Capital gains tax (CGT) applies when certain events or transactions happen. These are referred to as CGT events. The most common CGT event is CGT event A1 which relates to the disposal of an asset (section 104-10 of the ITAA 1997). Subsection 104-10(5) of the ITAA 1997 provides that a capital gain or capital loss will be disregarded if the asset was acquired before 20 September 1985. | Detailed Reasoning - Post CGT Dwelling - Building or structure on land acquired pre-CGT: Under subsection 108-55(2) of the ITAA 1997, a building or structure constructed on land that the taxpayer acquired before 20 September 1985 is taken to be a separate CGT asset from the land: a) if the taxpayer entered into a contract for the construction on or after that day, or b) where there is no contract - if the construction started on or after that day. When a CGT event happens to the real property, that CGT event happens to each separate asset and a separate capital gain or loss calculation is necessary for each CGT asset. | Detailed Reasoning - CGT treatment in a deceased estate: While the land and dwelling were separate assets from the deceased's perspective, they are a single post-CGT asset from the legal personal representative's(LPR's) perspective. Under subsection 108-70(2) of the Income Tax Assessment Act 1997 (ITAA 1997) the improvement is not a separate CGT asset because that provision does not apply to a CGT event that happens because of a person's death. Paragraph 2 of Taxation Determination TD 96/18 Income tax: capital gains: if after 19 September 1985 a person makes a capital improvement to a pre-CGT asset, does subsection 108-70(2) of the Income Tax Assessment Act 1997 deem the improvement to be a separate CGT asset on the person's death or on any later disposal by the legal personal representative (LPR) or a beneficiary?, explains what happens on the later disposal by the LPR when land is considered a pre-CGT asset and the dwelling is considered a post-CGT asset in the hands of the deceased. The view under TD 96/18, is that assets treated as separate assets under Division 108 do not remain separate assets when they pass to an LPR. TD 96/18 states that improvements built on land that was pre-CGT in the deceased's hands do not remain separate assets after the deceased's death when the LPR takes them, but instead become a single asset (i.e., part of the land). It reasons that an improvement isn't a separate CGT asset because section 108-70 of the ITAA 1997 doesn't apply to a CGT event that happens because of a person's death. Further, the section doesn't apply to any later disposal by a personal representative because the asset becomes a post-CGT asset in the hands of the LPR. | Detailed Reasoning - Cost base: If the deceased made a major improvement to the asset on or after 20 September 1985, the improvement is not treated as a separate asset. You are taken to have acquired a single asset. The cost base of this single asset is the total of: • the cost base of the major improvement on the day the person died • the market value of the pre-CGT asset, excluding the improvement, on the day the deceased died. In this case, the first element of the cost base for the property will be the market value of the land on the date of the deceased's passing plus the deceased's cost base of the dwelling (major improvement) on the date of their passing. | Detailed Reasoning - Partial exemption: As the property was not the deceased's main residence just before passing, and was used to produce assessable income and was not disposed of within two years of the date of death, you will not be eligible for a full main residence exemption available under section 118-195 of ITAA 1997. Subsection 118-200(1) of the ITAA 1997 states that you get only a partial exemption if: a) you are an individual and your ownership interest in a dwelling is passed to you as a beneficiary in a deceased estate or you owned it as the trustee of a deceased estate. b) Section 118-195 of ITAA 1997 does not apply. As you are a beneficiary and a trustee for John Aloysius Plettell you will be entitled to a partial exemption so that you can adjust your capital gain to consider that the property was the main residence of the deceased for part of their ownership period. The amount of capital gain you have made on the disposal of the deceased inherited interest is reduced by the partial main residence exemption and will be re-calculated as follows: | Detailed Reasoning - Original capital gain X Non-main residence days: Total days non-main residence days is the sum of: a) If the deceased acquired the ownership interest on or after 20 September 1985 - the number of days in the deceased's ownership period when the dwelling was not the deceased's main residence; and b) The number of days in the period from the death until your ownership interest ends when the dwelling was not the main residence of an individual referred to in item 2, column 3 of the table in section 118-195. | Detailed Reasoning - total days is:: a) If the deceased acquired the ownership interest before 20 September 1985 - the number of days in the period from the death until your ownership interest ends; or b) If the deceased acquired the ownership interest on or after that day - the number of days in the period from the acquisition of the dwelling by the deceased until your ownership interest ends. | Detailed Reasoning - Your circumstances: Your entitlement to a reduction to your capital gain from the sale of the dwelling portion of the property is based on the proportion of the deceased's total days that are main residence days as per subsection 118-200(1) of the ITAA 1997. Conversely, the capital gain on the dwelling remains payable to the extent of the proportion of your total days that are non-main residence days for the dwelling portion of the property. | Detailed Reasoning - Capital gain discount: Furthermore, the estate will be entitled to apply a 50% discount to any capital gains on the disposal of the deceased's property because they had owned it for longer than 12 months before you disposed of it. | Detailed Reasoning - Question 2: The property inherited is a capital asset. As such, any gain or loss on its sale is covered by the capital gains part of the ITAA 1997 which is exempt from tax, any gain from the sale of an asset (Land) acquired before 20 September 1985 (subsection 104-10(5) of the ITAA 1997). If you acquire an asset owned by a deceased person as their beneficiary, you are taken to have acquired the asset on the day the person died. If that was before 20 September 1985, you generally disregard any capital gain or capital loss you make from the asset. As the deceased passed away after 20 September 1985 you are deemed to have received the property on the date of the deceased's passing. Section 128-10 states that when someone dies, a capital gain or loss from a CGT even 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. Item 4 in the Table in subsection 128-15(4) states that if an asset was acquired by the deceased on or before 20 September 1985, the first element of the asset's cost base is the market value of the asset on the day the deceased died. Any later disposal by a personal representative because the asset becomes a post-CGT asset in the hands of the LPR. | Detailed Reasoning - Your circumstances: While the land and dwelling were separate assets from the deceased's perspective, they are a single post-CGT asset from the LPR's perspective as per section 108-70 of the ITAA 1997. As you inherited the property after 20 September 1985 any capital gain above the market value of the land portion of the property at the time of the deceased's passing will also be subject to capital gains tax.