Private ruling: Commissioner's discretion - deceased estate
Date of advice: 2 December 2025
Published: 27 January 2026
Ruling period: Year ended 30 June 20YY
Date scheme commenced: DD MM 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? | A1: No. 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.

Relevant facts and circumstances: Person A (the deceased) passed away DD MM 20YY. The deceased acquired the property on DD MM 19YY. The property is situated on less than two hectares of land. Person B (the deceased's spouse) was added to the property as a tenant in common on DD MM 20YY. The property was the main residence of the deceased before they passed away and was not used to produce assessable income after the date of death. The property remained vacant from the date of death. The deceased's spouse was residing at an aged care facility before they passed due to declining health. The deceased's spouse passed away on DD MM 20YY. Probate was granted for the deceased's spouse on DD MM 20YY. Person B left a Will dated DD MM 20YY which states: I appoint my children to be my joint Executors and Trustees herein. I give and devise and bequeath the whole of my estate both real and personal of whatsoever kind and wheresoever situated unto my Trustees upon the following trusts: (a) pay thereout my just debts and funeral and testamentary expenses including any probate duty or estate duty that may be payable in respect of or in consequence of my death. (b) as to the balance then remaining of my estate to my children in equal shares as tenants in common. Person A left a Will dated DD MM 20YY which states: I appoint my children (herein called 'my Trustees' and which expression shall include the Trustee or Trustees of my estate for the time being whether original or substituted) to be the joint Executors of this my Will and Trustees of my estate. I give the whole of my net estate to my Trustees upon trust to divide the same equally between all of my children who shall survive me in equal shares. Probate for the deceased was granted on DD MM 20YY. On 16 March 2020, under section 198(1) of the Public Health and Wellbeing Act 2008 , the Minister for Health made a declaration of a state of emergency throughout the State of Victoria arising out of serious risk to public health in Victoria from Novel Coronavirus 2019 (COVID-19). The Minister for Health extended the declaration multiple times. On DD MM 20YY, you received correspondence from solicitors. On DD MM 20YY, you received correspondence from solicitors which states the property is now ready for sale. For a sale to go through all executors need to agree. From December 2020, there are no COVID-19 restrictions preventing the sale of property via private sale or auction. On DD MM 20YY, you issued an email to solicitors. On DD MM 20YY, you received correspondence from solicitors. On DD MM 20YY, you received correspondence from solicitors which states they could not proceed because all beneficiaries had signed off except for one. On DD MM 20YY, you received correspondence from solicitors which mentions the failure to act. On DD MM 20YY, you contacted solicitors to confirm all executors agreed to sell the property and were proceeding to get the house ready and listed for sale. You entered into a contract to sell the property on DD MM 20YY with settlement occurring on DD MM 20YY.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1997 section 118-200

Reasons for decision: Summary: Section 118-195 of the ITAA 1997 disregards capital gains and capital losses made from certain CGT events that happen in relation to a dwelling that: • was a deceased person's main residence and was not being used to produce assessable income just before they died, or • was acquired by the deceased before 20 September 1985. If you dispose of an ownership interest in a dwelling that passed to you as an individual beneficiary or as the trustee of the deceased's estate within 2 years of the deceased's death, any capital gain or loss you make on the disposal is disregarded. Your ownership interest ends at the time of settlement of the contract of sale. In your case, the deceased acquired the property before 19 September 1985 and their spouse acquired a half share in the property as tenants in common after 20 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, the impact of COVID-19 and the uncertainty it caused from March 2020 until December 2020 as well as the co-executor's health issues and their inability to fulfil their obligations regarding the sale of the property. While we accept that executor participation was beyond your control, you could have commenced proceedings to have them removed as co-executor. Evidenced by the letter from your solicitor an application to the court to have the co-executor removed for failure to act would have likely been successful. This option could have been considered much earlier as the property was prepared for sale as early as DD MM 20YY. You chose not to consider the removal, citing cost, concern for the co-executor's health, and respect for your parents' wishes. We do not consider these factors sufficient to allow an extension of time. 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 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 date of death of both deceased respectively. 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. As you are an individual and you owned the dwelling as the trustee of a deceased estate and section 118- 195(1) does not apply you are eligible for a partial exemption for the period the surviving spouse remained living in the property after the death of their spouse. To work out the taxable portion of your capital gain or loss: • Step 1: Calculate your capital gain or loss from selling or disposing of the property. • Step 2: Multiply the amount at step 1 by the number of non-main residence days. • Step 3: Divide the amount at step 2 by the total days. For more information on Calculating a partial exemption for inherited property go to ato.gov.au and search for QC 66055.