Private ruling: Deceased estate
Date of advice: 19 February 2026
Published: 7 April 2026
Ruling period: Period ending DD MM YY
Date scheme commenced: DD MM YY

Ruling: Q1: Will the Commissioner exercise his discretion under section118-195 of the Income Tax Assessment Act 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.

Relevant facts and circumstances: Person A is identified as the deceased. The property is located at Address A and is on less than 2 hectares. On DD MM YY the deceased acquired a X share in the property as joint tenants with their parents. On DD MM YY they acquired an additional X share on the passing of one parent. On DD MM YY they acquired the final X share of the property on the passing of their other parent. On DD MM YY the deceased passed away. The property was their main residence at the time of their passing and was not being used to produce assessable income. Under the deceased's Will: • Person B was appointed as trustee and executor, and the Will directed that the firm of Law firm A be appointed as solicitors for the estate, • Clause 7 of the Will directed that no provision was to be made for a relative of the deceased, as no relationship had existed between the deceased and this relative for some time, • Clause 8 directed that the trustee was to liquidate all assets of the estate and pay all costs associated with the deceased's passing and administration of the estate, and • Under clause 8(b), the residual of the estate was then left to the deceased's defacto spouse Person C, who, at the time of the deceased's passing, was residing in a nursing facility and was living with dementia. The deceased had authority over their financial affairs. Around DD MM YY Person D, Person C's relative, contacted the estate's solicitors. Person D subsequently applied to become Person C's financial manager. Once appointed Person D moved Person C to a new nursing home that was closer to where Person D lived and that had better accommodation and services. This new facility had higher fees. On DD MM YY the Notice for Intention to apply for Probate was filed. The next several months were consumed by enquiries being made as to the deceased's assets, added to by normal officer closure over the Christmas period. Once replies were received to these enquiries the application for probate was prepared. On DD MM YY an agency agreement to lease the property was signed. The property was leased to help offset costs and to provide an income to assist with nursing home fees. The decision to lease the property was made in consultation with Person D as Person C's financial manager. On DD MM YY a X month lease was signed for the property. On D MM YY the application for probate was lodged. On DD MM YY probate for the estate was granted and the real estate agency was advised not to renew the current lease when it expired. In MM YY the deceased's relative came forward as a potential claimant against the estate. This meant that nothing could be distributed from the estate for at least 12 months from the date of the deceased's passing some 10 months prior. On DD MM YY the title of the property was transferred into the name of the executor as trustee of the estate. On DD MM YY the current lease on the property expired. On DD MM YY the keys to the property were collected and preparations to sell the property began. On DD MM YY Person C passed away. On DD MM YY the sole executor for Person C's estate renounced the role. On DD MM YY the two beneficiaries of Person C's estate, who were residing overseas at the time, were both notified of Person C's passing. On DD MM YY the real estate agency was advised to rent the property out on another lease. On DD MM YY the beneficiaries of Person C's estate provided consent for Law firm A to apply for letters of administration. On DD MM YY a new lease was signed for the property. On DD MM YY an application for letters of administration for Person C's estate was lodged. On DD MM YY the application was granted. On DD MM YY the tenant of the property was notified that the lease would not be extended. On DD MM YY the current lease expired. From late MM to early MM time was spent getting the property cleaned and painted. On DD MM YY an agency agreement to sell the property was signed. On DD MM YY the first inspection took place. On DD MM YY the property sold at auction. On DD MM YY the property settled.

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

Reasons for decision: Summary: 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 made 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. The Commissioner has discretion to extend the two-year time period where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death. 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 outlines the factors that the Commissioner will consider when determining whether to exercise his discretion to extend the two-year period under section 118-195 of the ITAA 1997. This discretion may be exercised in situations where: • the ownership of a dwelling or the will is challenged • a life or other equitable interest given in the will delays the disposal of the dwelling • the complexity of a deceased estate delays the completion of administration of the estate • settlement of the contract of sale of the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control • restrictions on real estate activities imposed by a government authority in response to the COVID-19 pandemic These examples are not exhaustive. They provide guidance on what factors the Commissioner would consider reasonable to exercise his discretion to extend the two-year period. Generally, the Commissioner will allow a longer period where the sale of the dwelling could not be settled within two years of the deceased's death due to reasons beyond your control. Consideration is given to whether the property was listed for sale as soon as practically possible after the resolution of any of these factors, and if the sale was completed within 12 months of the property being listed for sale. PCG 2019/5 also outlines factors that would weigh against the Commissioner allowing a longer period. Where these factors play a role in any delay in disposing of the property, the Commissioner would not consider discretion to be appropriate: • waiting for the property market to pick up before selling • waiting for refurbishment of the dwelling to improve sale price • inconvenience on the part of the trustee or beneficiary to organise the sale of the dwelling, or • unexplained periods of inactivity by the executor in attending to the administration of the estate. Whether the Commissioner will exercise his discretion under subsection 118-195(1) of the ITAA 1997 will depend on the facts of each case. The facts that caused the delay in disposing of the property are more important than the length of the delay. | Detailed Reasoning - Application to your circumstances: In your application you explain that the complexity of the estate contributed to the delay in the administration of the estate and that the delay was outside of the control of the executor. The Will of the deceased left no specific gift to any beneficiary and no specific or complex conditions for any distribution. It called for all the assets of the estate to be converted to cash, and once all costs had been met and provided for, the residual money from the estate was left to the deceased's de facto spouse Person C. Person C, at the time of the deceased's passing, was suffering from dementia and resided in a nursing facility. The deceased had previously had financial control of their affairs but with the deceased's passing, a family member, Person D, applied for and assumed this responsibility. It was put forward that the property was rented out to assist with nursing home fees, and that this decision was made in conjunction with Person D as the beneficiary's financial representative. However, it was not the responsibility of the estate or the executor to facilitate payment of these fees. The role of the executor was to liquidate the estate as soon as practically possible and distribute any monies, after costs, to the beneficiary, care of their financial manager. The application for probate was not made until MM YY, some X months after the deceased's passing, by which time the property had already been leased out. You have advised that the Supreme Court was experiencing delays in the review of files. While this could be seen to have delayed any application once lodged it would not have prevented or delayed lodgement of the application in the first instance. Probate was granted on DD MM YY, however transfer of the title did not occur until MM YY, X months later. Had the title been transferred at this point, the property could have been placed on the market for sale. The fact that there was a sitting tenant would not have prevented it being listed for sale. It is not uncommon for properties to be sold while tenanted. The deceased's relative had come forward as a potential claimant to the estate in MM YY. While they did not meet the definition of an 'eligible' person under the Family Provision Act 1982 (NSW), nothing could be distributed from the estate for a period of 12 months following the date of death. This would not have prevented transfer of the title or listing of the property for sale. By MM YY that 12 month period had lapsed, after which sale of the property could have proceeded. Instead, no action was taken until MM YY when the current lease had expired and preparations began to sell the property. Having considered the relevant facts, we will not apply the discretion under subsection 118-195(1) to allow an extension to the two-year time limit. It is the Commissioner's view that the delay in disposing of the property beyond the first two years following the passing of the deceased, was due to a conscious decision to lease the property when this was not required under the Will. Once it was leased no constructive action was taken to list or sell the property until this lease expired. This delay was not outside of the control of the executor. The Commissioner has not exercised the discretion to extend the two-year period to dispose of a dwelling under section 118-195. Therefore, any capital gain made on the property from the date the deceased passed away until the property is disposed of will be taxable. That is, the first element of your cost base for the property is its market value on the deceased's date of death. | Detailed Reasoning - Further issues for you to consider: A 50% discount of the capital gain can be used by an individual or a trust (in accordance with section 115-25 of the ITAA 1997), meaning a beneficiary of a deceased estate may be eligible for the discount. In order to be eligible for the discount the asset must have been acquired more than 12 months before the sale of the asset. Applied to your circumstances, the first element of the cost base will be market value at the date of death, and the deceased estate is deemed to have acquired the asset on this date. As this date was more than 12 months ago, the estate satisfies this requirement for utilising the 50% capital gain discount. A valuation of the property would need to have been undertaken, to determine the cost base accurately as at the deceased's date of death. This can be undertaken by a registered valuer or another person duly experienced. Further information regarding who can undertake the valuation can be obtained on www.ato.gov.au by searching using quick code QC 66067. The cost base consists of five elements, as listed in Section 110-25 of the ITAA 1997. These elements are added together to calculate the cost base.