Private ruling: Deceased estate - 2-year discretion
Date of advice: 18 February 2026
Published: 7 April 2026
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the capital gain or capital loss made on the disposal of property B be disregard under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. Property B was acquired by the trustees of the deceased's estate with the proceeds from the sale of the deceased's main residence. The deceased never acquired ownership of the property or lived in the property as their main residence. Consequently, as conditions have not been satisfied within the table under section 118-195 (1) any capital gain or capital loss will not be disregarded on the property under section 118-195 of the ITAA 1997.

Relevant facts and circumstances: The deceased owned a property (property A). The deceased passed away on XX/XX/20XX. Property A was the deceased's main residence during their entire ownership period until passing away. The deceased had a Will dated XX/XX/20XX. Under the Will in section Appointment of Executor, the Public Trustee was appointed as executor and trustee. In relation to the Powers of the trustee, the Will directs: My trustee may: • Apply the whole of the income or capital of my estate to which any beneficiaries are entitled either absolutely or otherwise for his her or their maintenance education or benefit in any manner determined by my Trustee. • Apply any assets of my estate not specifically given in whole or part satisfaction of a beneficiary's share of the estate (regardless of any direction to sell contained in this Will). • Retain any investments held by me at my death even if they are not investments authorised by law for the investment of trust funds. My Trustee will not be liable for any loss caused by their retention. In relation to the trust of residue of the estate, the Will directs: • I give the whole of my estate to my Trustee ON TRUST (the "Trust Fund") to pay the capital and its income to my child Person B to such extent as my Trustee in its absolute discretion shall think fit for their maintenance advancement or benefit during their lifetime whether or not there is any other fund available for the same purpose. My Trustee shall have the power to make payments to any other person to applied for the purpose of the trust without being liable to see to its application or for the non-application or misapplication. WITHOUT LIMITING the general powers of my Trustee, it shall where possible exercise its discretionary powers to enable them to participate in society in a positive way and with as little restriction as possible having regard to their rights needs and abilities as well as the limitations which may place them in a position of disadvantage. A provided copy of Order to Administer from the Supreme Court dated XX/XX20XX, authorised the Public Trustee to administer the deceased's estate in accordance with the Will. The child of the deceased resided in property A until it was sold on XX/XX/20XX by the trustees. The child rented a property until the trustees purchased a property (property B) more suitable for their needs, for them to reside in. Property B was purchased with the proceeds from the sale of property A. The child immediately moved into property B as their main residence. Property B is under 2 hectares. In late 20XX, the child was relocated to assisted living. Property B remained vacant. On XX/XX/20XX, property B was listed for sale by the trustees. On XX/XX/20XX a sale contract was signed. On XX/XX/20XX the settlement on the sale of property B occurred.

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

Reasons for decision: Summary: Section 118-195(1) of the ITAA 1997 provides a full CGT exemption for capital gains and capital losses made by a beneficiary or a trustee of a deceased estate from one of the specified CGT events in relation to a dwelling or the taxpayer's ownership interest in the dwelling. The exemption only applies if certain conditions are satisfied. A full exemption is available if at least one of the items in column 2 and at least one of the items in column 3 of the table in subsection 118-195(1) of the ITAA 1997 are satisfied. | Detailed Reasoning - Column 2: One of these items is satisfied if: 1. The deceased acquired the ownership interest 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 2. The deceased acquired the ownership interest before 20 September 1985 | Detailed Reasoning - Column 3: And also one of these items if: 1. Your ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner 2. The dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of: (a) the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or (b) an individual who had a right to occupy the dwelling under the deceased's will; or (c) if the CGT event was brought about by the individual to whom the ownership interest passed as a beneficiary- that individual. The child of the deceased lived in the deceased's main residence until the trustees sold the property to purchase a more suitable property for the son to reside in. There were no conditions in the deceased's Will specifying the purchase of a replacement property. The conditions in the table of section 118-195 were not met to allow a full CGT exemption as: • The deceased did not acquire ownership of the dwelling on or after 20 September 1985 and the dwelling was never the deceased's main residence before passing away and; • The deceased did not acquire an ownership interest before 20 September 1985. Section 118-195 of the ITAA 1997 can only be applied to a dwelling which was owned by the deceased before death. There is no rule allowing the main residence exemption to 'roll over' into a new house purchased after the deceased's death. The trustees acquired ownership of the property and subsequently sold the property. 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 are also entitled to the 50% CGT discount in relation to the property.