Private ruling: Deceased estate
Date of advice: 26 September 2025
Published: 17 November 2025
Ruling period: Year ended DD MM YY
Date scheme commenced: DD MM YY

Ruling: Q1: Is the sale of the property at Address A, inherited from the estate of the deceased, exempt from capital gains tax (CGT) under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes, in part.

Relevant facts and circumstances: The property is located at Address A and is situated on less than 2 hectares. On DD MM YY the deceased acquired the property and resided there with their parent from MM YY. In MM YY the deceased and their parent vacated the property and it was listed as available to lease. On DD MM YY the deceased passed away. The Will left multiple bequests and the taxpayer was listed as one of the beneficiaries of the Will with the property bequeathed to them. On DD MM YY the title of the property was transferred to the taxpayer. The property was listed for sale and subsequently sold. On DD MM YY the property settled.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1197 section 118-200 | Income Tax Assessment Act 1197 subsection 128-15(4)

Reasons for decision: Detailed Reasoning - Dwelling acquired from a deceased estate: Section 118-195 of the ITAA 1997 states that if you own a dwelling in your capacity as a beneficiary of a deceased estate, or you owned it as the trustee of a deceased estate, that you are exempt from tax on any capital gain made on the disposal of the property if: • The property was acquired by the deceased before 20 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 within 2 years of the deceased's death. | Detailed Reasoning - Application to your circumstances: You were a beneficiary in the estate of the deceased who bequeathed to you the property located at Address A. The deceased acquired this property in MM YY and resided in it for a period of time with their parent. The deceased and their parent vacated the property in MM YY and it was rented out from that time until after the deceased's passing. At the time of their passing, it was not their main residence and it was being used to produce assessable income. As the conditions specified under section 118-195(1)(b) of the ITTA 1997 cannot be met, any capital gain or loss made on the sale of the property cannot be fully exempt from CGT. | Detailed Reasoning - Partial Exemption: Subsection 118-200(1) of ITAA 1997 states that if you do not qualify for a full exemption under section 118-195 for an inherited property, you may be entitled to a partial exemption. Your entitlement to a reduction to your capital gain from the sale of the property is based on the proportion of the total days that are the deceased's main residence days. Conversely, the capital gain remains to the extent of the proportion of the total days that are non-main residence days. | Detailed Reasoning - Application to your circumstances: Although the property was not the main residence of the deceased at the time of their passing, it was their main residence for at least part of their ownership interest. They resided in the property from MM YY until MM YY. Under subsection 118-200(1) a partial exemption will apply that will reduce any applicable capital gain. The partial exemption is worked out using the formula: CG or CL amount x (non-main residence days/Total days) | Detailed Reasoning - Application of Division 128 to Deceased Estates: Division 128 of the ITAA 1997 contains rules that apply when an asset owned by a person just before they die passes to their legal personal representative or to a beneficiary in a deceased estate. In accordance with subsection 128-15(2), a legal personal representative or beneficiary is taken to have acquired the asset on the day the deceased person died. The table in subsection 128-15(4) sets out the modifications to the cost base and reduced cost base in the hands of the legal personal representative (LPR) or beneficiary. Item 1 in the table in subsection 128-15(4) states that the first element of the cost base to the LPR or beneficiary for assets that the deceased acquired after 19 September 1985, is the cost base of the asset on the day the deceased person died. As you have held the property for more than 12 months you are entitled to apply the 50% CGT discount to the capital gain.