Private ruling: CGT - deceased estate
Date of advice: 29 May 2026
Published: 17 August 2026
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Will the Commissioner exercise the discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time for you to dispose of your ownership interest in the dwelling and disregard the capital gain or capital loss you made on the disposal of the property? | A1: No.

Relevant facts and circumstances: The deceased purchased the property at xx xxx xxx with their spouse as joint tenants in MM 20YY. The property is less than 2 hectares. The dwelling was the deceased's main residence and never used to produce income. In MM 20YY the deceased moved to permanent residential care. The deceased's spouse remained living at the property until their death on DD MM 20YY. Their ownership interest passed to the deceased by right of survivorship. The deceased passed away on DD MM 20YY. The deceased died without a valid will. On DD MM 20YY the deceased's children applied for Letters of Administration. Letters of Administration were granted on DD MM 20YY. The Administrators are the sole beneficiaries of the estate. The beneficiaries disagreed on whether to retain or dispose of the property. The dispute was resolved in MM 20YY when it was decided that the property be sold. The Administrators both experienced personal issues. Your spouse had been diagnosed with an ongoing health issue which worsened in MM 20YY and died in MM 20YY. The other Administrator was dealing with an impending divorce which was finalised in MM 20YY. The property was transferred to the beneficiaries as tenants in common on DD MM 20YY. Between MM 20YY and MM 20YY, the deceased's grandchild resided at the property on agreement between the Administrators. They did not pay any rent or board or cover any household bills. Neither of the beneficiaries ever lived at the property. The property was painted throughout prior to the sale and minor repairs undertaken. There were no other major refurbishments done to the property. The property was listed for sale on DD MM 20YY and sold by the beneficiaries on DD MM 20YY with settlement occurring on DD MM 20YY.

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

Reasons for decision: Summary: A capital gain or capital loss may be disregarded where a capital gains tax event happens to a dwelling if you owned it as the trustee or beneficiary of a deceased estate. Section 118-195 of the ITAA 1997 provides a capital gains tax (CGT) exemption to beneficiaries and trustees where a CGT event happened to a dwelling they acquired from a deceased estate if: • the property was acquired by the deceased before 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 with two years of the deceased's death or within a longer period allowed by the Commissioner, or • the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of: ­ the spouse of the deceased immediately before death, or ­ an individual who had a right to occupy the dwelling under the deceased's will; or ­ the individual to whom the ownership interest is transferred as a beneficiary and is then sold by that individual. After the deceased passed away, you owned the property as a trustee of the estate. The property was the deceased's main residence until just before they passed away and was not used to produce assessable income at that time. The property settled more than two years after the deceased's death. Therefore, you require the Commissioner's discretion to extend the two-year period to be eligible for an exemption. Practical Compliance Guideline PCG 2019/5: The Commissioner's discretion to extend the 2-year period to dispose of dwellings acquired from a deceased estate (PCG 2019/5) outlines the factors that the Commissioner will consider when determining whether or not to exercise the discretion to extend the two-year period under section 118-195 of the ITAA 1997. Generally, the Commissioner will allow a longer period where the sale of the dwelling was delayed due to reasons beyond your control. The executor or trustee of the deceased estate must satisfy 5 conditions to qualify for the safe harbour. The first condition is that, during the initial 2-year period after the deceased's death, over 12 months are spent addressing one or more of the following circumstances: • the ownership of the dwelling, or the will, is challenged; • a life or other equitable interest given in the will delays the disposal of the dwelling; • administration of the estate is delayed due to the complexity of the deceased estate; • settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of the trustee's/beneficiary's control; • restrictions on real estate activities imposed by a government authority in response to the COVID-19 pandemic. The second condition is that the dwelling must be listed for sale as soon as practically possible after those circumstances are resolved. Three, the sale must be settled within 12 months of the listing. Four, the following factors are immaterial to the delay in disposing of the dwelling and would weigh against the Commissioner allowing a longer period: • waiting for the property market to pick up before selling the dwelling; • delay due to refurbishment of the house to improve the sale price; • inconvenience on the part of the trustee or beneficiary to organise the sale of the house, or • unexplained periods of inactivity by the executor in attending to the administration of the estate. The final condition requires that there be no more than an 18-month extension to the 2-year period for disposal. In the event that the safe harbour conditions are not met, the PCG also outlines factors that the ATO may consider when weighing up whether or not to exercise the Commissioner's discretion: • the sensitivity of the trustee's/beneficiary's personal circumstances and/or of other surviving relatives of the deceased; • the degree of difficulty locating all beneficiaries required to prove the will; • any period the dwelling was used to produce assessable income, and • the length of time the trustee/beneficiary held ownership interest in the dwelling. Paragraph 14 of PCG 2019/5 explains we weigh up all of the factors (both favourable and adverse). In your case, we consider as favourable factors that the property was not used for income producing purposes. We also considered: • there was no challenge to the ownership of the property or to the deceased's estate; • there was no life interest granted that caused a delay in the disposal of the dwelling; • there were no factors from the time of the deceased's death that explain the executors' inability to attend to disposing of the property. • there was no delay in settlement of the contract of sale over the property. The Commissioner must consider the reasons for the delay starting in the first two years. The property was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased's main residence just before their death and was not then being used for the purpose of producing assessable income. You did not dispose of your ownership interest within two years of the deceased's passing. Therefore, you require the Commissioner's discretion to extend the two-year period to be eligible for an exemption. In this case, there were periods of inactivity where it appears the administrators did not actively take steps to attend to progressing the sale of the property. For example, the protracted delay in application for a grant of Letters of Administration has not been adequately explained. You have not provided sufficient evidence to support the reason for the delay in applying for Letters of Administration. There were periods of inactivity after the grant of Letters of Administration, and you have not demonstrated what prevented the sale of the dwelling. Although we acknowledge there was a time of grief for you, the other beneficiary took no steps to progress the sale of the property They concentrated on resolving their divorce and did not provide information on how this affected their ability to assist in administering the estate. Further, the dwelling was occupied for more than XX months by the deceased's grandchild, but they did not have a right occupy the dwelling; this decision was made by the beneficiaries. Considering there were no major repairs or renovations done to the property, the lengthy delays are unsupported. There was no unexpected delay for settlement of a contract of sale over the property. There were no complexities regarding the deceased estate. There were no extenuating circumstances that are considered complex that prevented the estate being administered in that, there were no challenges to the administrators and they both accepted their role to administer the estate. A personal disagreement regarding whether to dispose of the dwelling is considered an inconvenience on the part of the administrators in organising the sale of the house. The Commissioner's discretion is limited to situations where it was not possible for the trustee or beneficiaries to sell the property before the time it was actually sold. The intention of the two-year period is to allow the orderly and timely sale of deceased estate property. The decision by the beneficiaries to have the property title transferred to them and to retain the dwelling was a choice. Although there will be circumstances in which it is understandable why the trustee or beneficiaries may decide to retain the property rather than selling it, this remains a choice and in these circumstances an extension of time will not be granted. Although we acknowledge this was a time of grief for you, the additional time taken to dispose of the dwelling beyond the deceased's passing is a factor that weighs against the Commissioner allowing a longer period. The information provided in your application does not provide the delay in selling the property was caused by any of the circumstances described as favourable factors as outlined in paragraph 12 of PCG 2019/5, for example, legal challenges to the ownership of the dwelling or challenges to the will. Moreover, when you disposed of your interest in the dwelling you were the individual who brought about the relevant CGT event. However, the dwelling was not your main residence. Therefore, you do not satisfy the conditions to be eligible for a full main residence exemption under section 118-195 of the ITAA 1997. The capital gain cannot be disregarded in the income year ended 30 June 20YY when the CGT event occurred. Having considered the relevant facts, the Commissioner will not apply the discretion under section 118-195 of the ITAA 1997 to allow an extension to the two-year time limit for the reasons outlined above. The normal CGT rules will apply to the disposal of the property. You should note that the first element of your cost base for the property is its market value on the deceased's date of death. You are also entitled to the 50% CGT discount in relation to the property