Private ruling: Deceased estate 2 year discretion
Date of advice: 22 July 2025
Published: 22 September 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion under section 118-195 of Income Tax Assessment Act 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? | A1: No.

Relevant facts and circumstances: The deceased passed away on XX/XX/20XX. The deceased acquired the property after 20 September 1985. The property was the main residence of the deceased just before they passed away and was not used to produce assessable income at that time. The property was situated on less than two hectares of land. Prior to their death, the deceased was in the process of renovating the property. The deceased nominated Person A as the executor in their will. The deceased also nominated Person B as the alternate executor (the alternate executor) in their will. Several weeks after the deceased's funeral, the executor engaged the services of Company A and spoke with the deceased's estate lawyer, who provided them with an information pack and advised that their assistant would contact them. The executor felt overwhelmed after this visit. In late XX/20XX, the estate lawyer's assistant made initial contact with the executor. In XX/20XX, the estate lawyer's assistant contacted the executor and requested some documents. During this time, the executor experienced health issues which limited their movement and their capacity to communicate, however the executor acquired some of the documents from the property. In XX/20XX, Company A advised the executor that they had received correspondence and a cheque from the deceased's bank. During XX/20XX, the executor sent a payment request for the cost of the deceased's funeral to Company A and in early XX/20XX, Company A sent a confirmation of payment email. Covid-19 lockdowns commenced, and the executor found it difficult to source tradesman during this time to complete the renovations that the deceased had commenced before their death. In XX/20XX, the executor received the deceased's life insurance and superannuation details. This was overwhelming for them, and they took some time to process this information. In XX/20XX, the executor received an email from Company A advising that they required a copy of the rates for the property. The executor was certain that they had provided this, however the executor resent the documents and then contacted Company A to ensure that they had received them. Company A then informed the executor that the firm would cease acting on behalf of the deceased's estate. In XX/20XX, the executor received an invoice from Company A for work on the estate to date. The executor advised that they were unable to pay the invoice, however, they would find a way to pay it. When the executor did attempt to pay the invoice, Company A advised the executor that they had released documents relating to the estate, including the deceased's original will to the alternate executor's solicitors, which the executor did not consent to. During this time, work ceased on the renovations at the property. During 20XX, the alternate executor instructed Company B to make an application for probate on their behalf. Documents were issued to the executor to transfer their duties of executor to the alternate executor. This application of probate by the alternative executor required the executor to renounce their position, which they were not prepared to do. Discussions between the executor and the alternate executor continued for several months. On XX/XX/20XX the executor engaged with Company C to commence the administration of the estate. On this date, the executor understood that Company A held the deceased's original will. On XX/XX/20XX, the executor and the alternate executor signed a negotiation of a Deed of Covenant. Following this, the alternate executor withdrew their application for probate and the executor applied for probate. After the executor had engaged with Company C, the executor proceeded to sort through the deceased's items and consulted with tradesman to complete the kitchen and plaster walls. On XX/XX/20XX, probate was granted to the executor. On XX/XX/20XX, the executor listed the property for sale. On XX/XX/20XX, the executor sold the property at auction, with settlement occurring on XX/XX/20XX. Prior to the sale of the property, some cleaning and minor repairs occurred, including some tiling and painting. From the time that the deceased passed away until the sale, the property remained vacant.

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 the deceased estate. For a dwelling acquired by the deceased after 19 September 1985, that was the deceased's main residence and not used to produce assessable income just before their death, you will be entitled to a full exemption if your ownership interest ends within two years of the deceased's death. Your ownership interest ends at the time of settlement of the contract of sale. In your case, the deceased acquired the property after 19 September 1985. After the deceased passed away, you owned the property as 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 sale 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 two year period to dispose of dwellings acquired from a deceased estate provides guidance on factors we consider when deciding whether to grant the discretion. Paragraph 3 of PCG 2019/5 provides that we will allow a longer period where the dwelling could not be sold and settled within two years of the deceased's death due to reasons beyond your control that existed for a significant portion of the first two years. Paragraph 14 of PCG 2019/5 explains we weigh up all of the factors (both favourable and adverse). Paragraph 17of PCG 2019/5 provides a list of other factors that may be relevant to the exercise of the Commissioner's discretion which includes the sensitivity of your personal circumstances. In your case, we consider as favourable factors, that the executor engaged with lawyers shortly after the deceased passed away in order to progress the administration of the estate and they attempted to source the required documentation to achieve this. We also acknowledge the executor's personal circumstances affected their ability to prepare the property for sale at various times: • The executor experienced some health issues whilst attempting to administer the estate. • The executor experienced difficulties financing the lawyer's involvement in administering the estate. • The executor felt overwhelmed at times whilst taking action to administer the estate. • We considered other adverse factors, including: • After the executor initially contacted the estates lawyer, there were lengthy delays in administering the estate. • Although the alternate executor requested a change of executor, which was outside of the control of the current executor and further delayed the sale of the property, a significant amount of time had passed before this occurred. • The executor chose to pursue the renovations that the deceased commenced prior to their death. Alternatively, the executor could have sold the property in its current state. As per paragraph 13 of PCG 2019/5, we do not consider unexplained periods of inactivity by the executor in attending to the administration of the estate or waiting for refurbishment of the dwelling to improve the sale price of the property as circumstances that could have been material to the delay in disposing of the interest in 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 capital gains tax (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. The cost of repairs can also be included in the cost base of the property. You are also entitled to the 50% CGT discount in relation to the property.