Private ruling: Capital gains tax - deceased estate
Date of advice: 30 October 2025
Published: 15 December 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion in section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the 2-year period in respect of the sale of interests in Property 1 owned by the trustees of the Person Z Testamentary Trust and the Person Y Estate? | A1: Yes. | Q2: Is the discretion under section 118-195 of the ITAA 1997 to allow an extension of the 2-year period for the disposal of a dwelling, available in relation to Property 2? | A2: No.

Relevant facts and circumstances: Person Y and their spouse Person Z purchased the Property pre-CGT as tenants in common in equal shares. The Property was situated on less than 2 hectares of land. It would remain the main residence of Person Y and Person Z until their respective deaths. In XX/XXXX, Person Z passed away leaving a Will. Person Z's will created a trust over their 50% interest for the benefit of Person Y for life, with the remainder to their three children, C1, C2 and C3 (collectively referred to as the Children). The Children are trustees of the trust created under Person Z's will. In XX/XXXX, probate of Person Z's will was granted to the Children. In XXXX, C2 constructed another house on the Property which would come to be referred to and known as Property 2. C2 used their own funds to pay the construction costs of $XX,XXX. C2 and their family resided in this property. C2 moved into the original dwelling at the Property (Property 1) with the deceased for about X months, while the house at Property 2 was being constructed. In XX/XXXX, Person Y passed away leaving a Will. Person Y's Will gave their 50% interest in Property 2 to C2, subject to an adjustment in favour of C3 and C1 to reflect the value of the land in XXXX when C2 constructed the dwelling. In XX/XXXX, the children obtained a survey of Property 1 and Property 2 with the intention of subdividing it. On XX/XX/XXXX, probate of Person Y's Will was granted to C2 and C3. Following the granting of probate, C1 and C3 encountered difficulties in preparing Property 1 for sale due to COVID restrictions impacting their ability to travel to the property. C1 lived interstate and therefore was unable to reasonably leave their state until XX/XXXX, and C3 was physically unwell during this time. No capital improvements were undertaken at Property 1 after Person Y's death. C2 initially indicated an intention to continue residing at Property 2. A dispute arose between the siblings regarding the liability upon the potential sale of the property. This caused lengthy delays and disharmony among the Children. When C1 and C3 were able to travel to Property 1, they had to engage lawyers to gain access as C2 would not provide the keys. Once they were able to gain access, it took some time to clear the personal effects (which had been acquired over a lifetime) to return it to a saleable condition. Ultimately C2 decided to sell Property 2 however it took them until 2 years after Person Y's death to undertake necessary repairs, partly due to the issues with getting tradespersons during COVID. Without consulting C1 and C3, C2 engaged a firm to lodge a plan of subdivision for the properties and engaged a real estate agent to sell Property 2. They had let Property 1 deteriorate to an unkempt state during the preceding X months. C1 and C3 received legal advice that it was more cost effective to deal with the sale of both properties simultaneously. They agreed to this approach although the dispute between the Children had not been resolved and had Property 1 readied for sale. The original property was subdivided with the subdivision certificate being issued XX/XX/XXXX. On XX/XX/XXXX, Property 1 and Property 2 were listed for sale. On XX/XX/XXXX, Property 1 and Property 2 were sold at auction subject to subdivision with settlement scheduled for XX/XX/XXXX. Ultimately settlement was delayed for a period of one month due to a conveyancing problem. In XX/XXXX, the subdivision of the properties was registered. At no time were Property 1 and Property 2 used to produce assessable income. In XX/XXXX, the Children entered a deed to settle their respective interests under Person Y's estate.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 108-55(2) | Income Tax Assessment Act 1997 section 118-195

Reasons for decision: Summary: A capital gain or capital loss may be disregarded under section 118-195 of the ITAA 1997 where a capital gains tax (CGT) event happens to a dwelling if you owned it as the trustee or beneficiary of a deceased estate. A requirement for the exemption is that either the deceased acquired their ownership interest in the dwelling before 20 September 1985 (that is pre-CGT), or if it was acquired after that date (that is, post-CGT), the dwelling was their main residence at their date of death and not being used to produce income at that time. The capital gain or loss is disregarded if the dwelling is disposed of within 2 years of the deceased's death, or a longer period allowed by the Commissioner. 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 outlines the factors that the Commissioner will take into consideration when deciding whether to exercise the discretion to extend the 2-year period. | Detailed Reasoning - Property 1: The original dwelling was acquired by Person Z and Person Y pre-CGT. In any case, it was also their main residence at their date of death and not being used to produce income at that time. However, it was not sold within 2 years of their deaths. Therefore, The Trustee for Person Z Testamentary Trust and The Trustee for Person Y Estate require the Commissioner to exercise the discretion under section 118-195 of the ITAA 1997 to extend the 2-year period in order for them to be entitled to an exemption for their respective ownership interests in Property 1. For the 50% ownership interest held by Person Y's estate, there were several contributing causes of the delay including a dispute in relation to the estate, the impact of COVID restrictions, and the ill health of an executor. It is also noted that the property was disposed of within 6 months of the end of the 2-year period after Person Y's death and it was never used to produce assessable income. Having regard to all the circumstances it is considered appropriate to allow an extension of time for The Trustee for Person Y Estate to dispose of their ownership interest in Property 1. For the 50% ownership interest held by Person Z's testamentary trust, in addition to the causes of delay mentioned above in relation to Person Y's estate for the period after Person Y's passing, the other cause of delay which relates to the period from Person Z's passing to Person Y's death, was Person Y's life tenancy in the property. PCG 2019/5 states that a delay resulting from a life tenancy is a favourable factor in considering an extension of time. Therefore, an extension of time will also be allowed for The Trustee for Person Z Testamentary Trust to dispose of their ownership interest in Property 1. | Detailed Reasoning - Property 2: The dwelling at Property 2 was constructed post-CGT. As it was constructed post-CGT, it is deemed to be a separate CGT asset by subsection 108-55(2) of the ITAA 1997. As mentioned previously, a requirement of section 118-195 of the ITAA 1997 for a post-CGT acquired dwelling is that it was the deceased's main residence at their date of death. This condition for eligibility under section 118-195 of the ITAA 1997 has not been met as Property 2 was not Person Y's main residence. Therefore, the Commissioner cannot grant a longer period to sell the dwelling and disregard the capital gain or loss under section 118-195 of the ITAA 1997.