Private ruling: Capital gains tax - deceased estate
Date of advice: 18 July 2025
Published: 15 September 2025
Ruling period: Year ended 30 June 2024
Date scheme commenced: 1 July 2023

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 property and disregard the capital gain made on the disposal? | A1: No.

Relevant facts and circumstances: The deceased passed away several years ago. The property was the deceased's main residence for the whole of their ownership period. The property was less than 2 hectares in size. The property was never used to produce assessable income either prior to the deceased passing or after they passed. The deceased passed away without a will. The deceased had two adult children, Individual Y and Individual Z. Individual Y moved into the property after the deceased's death and remained there for several months cleaning up the property and searching for a will. Individual Y's family also moved into the property. There were ongoing disputes between Individual Y and Individual Z regarding the estate and both had applied for letters of administration as individuals without success. The public trustee in the relevant state (the trustee) was asked to take over the administration of the estate in the year after the deceased's death. Individual Y was asked to vacate the property by the trustee. Letters of administration were granted to the trustee. Individual Y located documents which they felt constituted an informal will and gave these to the trustee. A building inspection was carried out for the trustee which identified some issues with the property. The inspection report listed incomplete works that had been commenced by Individual Y. In an email dated DDMM20YY, the trustee states that the trustee typically sells an estate property 'as is' but once a real estate agent is engaged, their property team will liaise with them to determine which works, if any, should be completed prior to sale in order to achieve the best result for the estate. Since the deceased's passing, extensive works were carried out on the property prior to it being made available for sale, including completion of works commenced by Individual Y. Contracts were exchanged on DDMM20YY and settlement occurred on DDMM20YY. Individual Y believed that they had established the property as their main residence.

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

Reasons for decision: Summary: The general main residence exemption in section 118-110 of the ITAA 1997 applies to disregard a capital gain or capital loss a taxpayer makes from selling their main residence that they own. In relation to a deceased's former main residence, section 118-195 of the ITAA 1997 may provide an exemption where it is disposed of within 2 years of the deceased's death by the trustee of the deceased estate, or a beneficiary of the deceased estate after title to the dwelling is transferred to the beneficiary. The application of the provision varies depending on whether it is sold by the trustee or the beneficiary. In this case the deceased's former main residence was sold by the trustee. Where a trustee of a deceased estate disposes of the deceased's former main residence outside of the 2 year time period, the exemption will still apply if an extension of time is granted or during the period from the deceased's death to the date of disposal, the dwelling was the main residence of either: • the deceased's spouse, or • an individual who had a right to occupy the dwelling under the deceased's will. In this case the deceased's spouse had predeceased him and as he died without a will, no individual had a right to occupy the dwelling under a will. Therefore, the trustee will require the Commissioner to exercise the discretion to allow an extension of time to dispose of the dwelling. The discretion is discussed in Practical Compliance Guideline PCG 2019/5 Capital gains tax and deceased estates - the Commissioner's discretion to extend the 2-year period to dispose of dwellings acquired from a deceased estate. It states that 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 2-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. • Waiting for refurbishment of the dwelling to improve the sale price. • The property was used to earn assessable income. • Unexplained periods of inactivity 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. In this case, the major cause of the initial period of the delay was due to the deceased passing away without a will and the disagreement between the two beneficiaries on who should act as administrator of the estate. However, this was resolved once letters of administration were granted to the trustee. We acknowledge that subsequent to this, one of the beneficiaries provided the trustee with documents which they purported constituted an informal will. However, this was not the main cause of the further period of delay after letters of administration were granted. Rather, the primary reason for the additional period of delay of approximately 2 years was the work undertaken to the property. PCG 2019/5 states that delay caused by the refurbishment of the property is an unfavourable factor in considering whether to allow an extension of time. It is often the case that a deceased's former main residence is in a poor condition at the time of the deceased's passing and a real estate agent may recommend that some work is done to the property before it is sold. It is understandable that trustees and beneficiaries may undertake work to address the poor condition of a property in order to maximise the return from its sale. However, this does not mean that the resulting delay is unavoidable as a property can be sold 'as is'. That is, the delay is due to a choice to undertake the work. In this case a building inspection report has been provided that notes the property had safety issues. This is not evidence that the property could not legally be sold in an 'as is' condition. It is also noted that the trustee's email of DDMM20YY stated that generally the trustee will sell deceased estate properties 'as is'. This supports our view that there was no legal impediment to the sale of the property once the trustee was granted letters of administration. Although some works started to the property remained incomplete, it could still have been sold in its existing condition. The Commissioner will not exercise the discretion to extend the 2-year time period prescribed in section 118-195 of the ITAA 1997 because the significant period of delay after letters of administration were granted was primarily due to work being undertaken to the property which was not a requirement before it could be sold. We note that one of the beneficiaries believes that a main residence exemption applies to the deceased estate on the sale of the property because they lived in it for a period. However, this is incorrect. Where the trustee of a deceased estate sells a deceased's former main residence, the subsequent occupation by a beneficiary who did not have a right to reside under a will, does not qualify the trustee of the deceased estate for a main residence exemption under section 118-195 of the ITAA 1997 for the period it was occupied by the beneficiary. As the Commissioner is not exercising the discretion to extend the 2-year period to dispose of the property, any capital gain made on the property from the date the deceased passed away until the property was disposed of will be subject to tax. However, the 50% CGT discount will apply in relation to the property.