Private ruling: Capital gains tax
Date of advice: 15 April 2026
Published: 13 July 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 to dispose of the ownership interest in the property and disregard the capital gain made on the disposal? | A1: No.

Relevant facts and circumstances: The deceased passed away a few years ago. The property was purchased by the deceased and Individual 1. The deceased owned a portion of the ownership interest and Individual 1 owned the remaining interest. The property was the deceased's main residence just before they passed away. Individual 1 lived with the deceased at the property and continues to live there. The property is less than X hectares in size. Probate was granted several months after the date of death. The deceased's will gave a relative and Individual 1 a portion of the deceased's ownership interest in the property. The will allowed Individual 1 a period of time to decide on purchasing the share of the property bequeathed to the relative for its market value. The deceased relative agreed to sell their share to Individual 1. The relative's share of the property was transferred to Individual 1. The ownership interest was never in the deceased's relatives name as beneficiary and was transferred from the Estate to Individual 1 directly. The delay in transferring the ownership interest of the property bequeathed to the deceased's relative was due to Covid and the beneficiaries inability to be able to meet to discuss the purchase of the share of the property and agree on an amount. Individual 1's child was sick during Covid, and Individual 1 had to take time off work to care for their child. Individual 1 did not want to pay market value for the share of the property as they wanted compensation for improvements they had done on the property which benefited the Deceased. Lawyers were engaged to administer the estate. It became apparent that the lawyers had not progressed the administration of the estate and transfer of the property. New lawyers were engaged in the following year. The beneficiaries agreed on an amount for the share of the property. The deceased's relative agreed to the amount so the matter could be resolved as it had been dragging on. The lawyers contacted the beneficiaries to ask for the information in order to do the deed of arrangement between the beneficiaries as they had lost the information. Subsequent emails from the lawyers continued to state that they were still finalising the deed. In an effort to finalise the deed of arrangement, the beneficiaries engaged another lawyer. This lawyer quickly finalised the deed and the deceased's relative signed it. The property was transferred into the sole name of Individual 1.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-195

Reasons for decision: Summary: The main residence exemption in section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) applies to disregard a capital gain or capital loss a taxpayer makes from a capital gains tax (CGT) event that happens to a dwelling that is their main residence. If a taxpayer inherits an ownership interest, subsection 118-195(1) of the ITAA 1997 applies so that any capital gain or capital loss they make from a CGT event that happens in relation to a dwelling or their ownership interest in a dwelling is disregarded if: • They are an individual and the interest passed to them as a beneficiary in a deceased estate, or they owned it as the trustee of a deceased estate; and • 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; and • Their ownership interest ends within two years of the deceased's death, or within a longer period allowed by the Commissioner. Where the deceased acquired the property prior to 20 September 1985, the dwelling was from the deceased death until your ownership interest ends the main residence of one of the following: • the spouse of the deceased immediately before their death (but not a spouse who was permanently separated from the deceased) • a person who has a right to occupy the property under the deceased's will • you, as a beneficiary, if you dispose of the property as a beneficiary. Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example: • The ownership of a dwelling or a will is challenged. • The complexity of a deceased estate delays the completion of administration of the estate. • A trustee or beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the two-year period (for example, the taxpayer or a family member has a severe illness or injury). • Settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control. Factors that would weigh against the granting of the discretion include: • Waiting for the property market to pick up before selling the dwelling. • Property used to earn assessable income. • Unexplained periods of inactivity by the executor in attending to the administration of the estate. The above examples are not exhaustive. In addition, once any circumstances preventing the sale of the Property have been resolved, the Property needs to be placed on the market as soon as possible to enable its disposal. | Detailed Reasoning - Application to your circumstances: The delay in Individual 1 purchasing the share of the property from the deceased's relative was not out of their control. The will gave the option to Individual 1 to purchase the relatives share of the property at the market value. Discussions could have taken place in a timelier manner and to meet the time requirement under the will. The will was not followed, and it was sold for less than market value and outside of the period allowed under the will. There was no requirement to meet in person to have such discussions and there were significant gaps in the timeline where no follow-up occurred to progress the transfer of the share of the property. In this regard, we consider that the delay was not outside your control. It is for the above reasons that you do not meet the requirements for the Commissioner to extend the 2-year time and disregard the CGT on the share of the property. The Commissioner will not be exercising his discretion to extend the 2-year period for you to dispose of the share of the Property. Therefore, any capital gain made on the property from the date the deceased passed away until the share of the Property was transferred into Individual 1's name will be subject to tax. Australian tax residents are entitled to the 50% CGT discount in relation to the property. The market value of the property will be the amount the CGT is calculated on.