Private ruling: CGT - deceased estate
Date of advice: 24 October 2025
Published: 8 December 2025
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion under section 118-195 of 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.

Relevant facts and circumstances: The deceased and their spouse acquired the property pre-CGT. In 20XX, the spouse passed away and their interest in the property transferred to the deceased. On XX/XX/20XX, the zoning of the property was changed from R2 Low Density to R4 High Density. On XX/XX/20XX the deceased passed away. At the time of their passing, the property was their main residence. The deceased was survived by their adult children who were the nominated executors and beneficiaries in their will. X of the children passed away during the 20XX calendar year. One of the surviving children resided in the property from XX/XX/20XX until XX/XX/20XX. In XX/XX/20XX, the surviving children began negotiations to sell the property and received offers in XX/20XX. It was at this time that they became aware of the fact that the property was in an area that was subject to a re-zoning application by the local council who had initiated a Local Environment Plan process to have the area re-zoned. On XX/XX/20XX, probate was issued to the surviving children. The delay in obtaining probate was the result of X of the children passing away and the effects of the COVID-19 pandemic. The Inventory of Property that formed part of the probate documents listed the property as having an estimated value of $X. In XX/20XX, the R4 high-density zoning of the property was repealed by the local council. After this the council through the Draft X Development Control Plan 20XX exhibited proposals up to XX/XX/20XX. In XX/20XX, the trustees of the estate entered into an agency agreement with a real estate agent despite the known council rezoning issues. On XX/XX/20XX, an Exclusivity Deed with a prospective purchaser was signed for the property. On XX/XX/20XX, the trustees of the estate and the prospective purchaser entered into a Call Option Deed in relation to the property with a call option fee of $X a call option period of XX months and a purchase price of $X. The deed's stated purpose was: 'To obtain approval to develop the Property and sale of the Property'. On XX/XX/20XX, the property was rezoned to R4 high density living. The sale of the property settled on XX/XX/20XX. The property had not been used to produce income by either the deceased or their estate.

Relevant legislative provisions: 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, or if it was acquired after that time, 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. PCG 2019/5 provides that generally we will allow a longer period where the delay in the sale of the dwelling was beyond your control. We acknowledge that in this case, the initial period of delay until probate was granted on XX/XX/20XX was outside of your control as it was due to the passing of X of the nominated executors and the effects of the COVID-19 pandemic. However, we consider that the subsequent period of delay until the sale of the property settled on XX/XX/20XX was not outside of your control. Changes to zoning and the associated uncertainty is not uncommon and does not prevent a property from being sold. It is understandable that property owners may choose to delay the sale of a property until zoning is confirmed in order to maximise the sale price. However, this is still a choice rather than a matter outside of their control. It is also understandable that in order to maximise the sale price, a property owner may instead of opting for a conventional sale, choose a sale to a developer which is conditional on a lengthy settlement period to allow for zoning to be approved. But again, although understandable, this remains a choice rather than a matter outside of the property owner's control. As a substantial portion of the total delay was not beyond your control, we will not allow an extension of time. Therefore, CGT will apply to the disposal of the property. In this case, the first element of the cost base for the property will be its market value on the date of the deceased's passing. You are also entitled to the 50% CGT discount in relation to the property.