Private ruling: CGT - deceased estate
Date of advice: 16 October 2025
Published: 1 December 2025
Date scheme commenced: DD MM 19YY

Ruling: Q1: Will the Commissioner exercise the discretion in section 118-195 of the Income Tax Assessment Act 1997 , to allow an extension of time for you to dispose of your ownership interest in the property and disregard the capital gain or capital loss you made on the disposal? | A1: No. This private ruling applies for the following period: Income year ended DD MM 20YY The scheme commenced on: DD MM 19YY

Relevant facts and circumstances: DD MM 19YY, person 1, purchased the property. The property was their main residence. The property was not used to produce income. The property was on land of less than 2 hectares. On DD MM 19YY, person 1 passed away. Person 1 was the parent of person 2 and the grandparent of siblings, person 3 and person 4 (you). Person 1 left a will dated DD MM 19YY (the will). The will appointed person 3 and you as trustees. On DD MM 19YY, probate was granted. In the will, the property was left to person 3 and you in joint ownership with a condition that the sale of the property be postponed allowing person 2 to occupy the property. Sometime during 19YY-20YY, the property was transferred to person 3 and you as beneficiaries. This was a couple of years after person 1 passed away. On DD MM 20YY, the Council sent notice to person 3 and you of the Council's plan to apply a Public Acquisition Overlay (PAO) on the property, and the adjoining block, for future use as a public park. Under a state law, a PAO is applied to identified land to reserve for a public purpose and indicates that this land could be compulsorily acquired in the future. On DD MM 20YY, the Council was advised that the Master of Planning had approved the PAO for the property (the land) to be used as a future open space, a public park. On DD MM 20YY, person 3 and you signed a Letter of Authority engaging the services of your lawyers to liaise with Council. The PAO created a great sense of worry for person 2 as they were residing in the property. An agreement was reached whereby the Council would allow them to stay at the property until they passed. Person 2 had to be placed into care due to their deteriorating health. On DD MM 20YY, in a letter to person 3 and you, the Council inform you they were aware the property was vacant, and they remained interested in purchasing it and would be open to entering into discussions about how this could be achieved. On DD MM 20YY, person 2 passed away. The right to occupy ceased as of this date. The Council was notified of their passing shortly after the event. After person 2's passing, the property was left vacant. On DD MM 20YY, the Council, acting through the Council's lawyers, sent person 3 and you an email letter to informed you they were willing to pay the market value for the property as well as reasonable costs incurred in the matter, but they would not agree to pay other amounts applicable to a compulsory acquisition. Their preference was to negotiate a sale by agreement. However, they would pay for you to obtain an independent valuation of the market value of the property. On DD MM 20YY your lawyers replied, expressing your preference for a compulsory purchase as this would include additional compensation amounts. One DD MM 20YY, person 3 and you received the first of two notices from the Council of building defects on the property. Both person 1 and person 2 were hoarders. The property was filled to the brim with items and junk because the property had been in the family for many years. It was in a very dilapidated state, both the interior and the exterior. A significant amount of cleaning was needed. As trustees, person 3 and you were required to go through every item to make sure that nothing important was being thrown out. It took X months to clean the property. Both person 3 you have children and multiple further deaths in the family. The deaths occurred between DD MM 20YY and DD MM 20YY. While the property was being cleaned, person 3 and you were not able to secure a sale within the two-year period of person 2's passing due to the PAO being listed on the property. You did not put the property on the market because you did not expect anyone to buy it with the PAO applied to it. Person 3 and you had to wait for the Council to organise the purchase of the property. The attempts at disposing of the property were aimed at getting the Council to purchase the property. On DD MM 20YY, person 3 and you received the second notice of building defects on the property as the Council believed on reasonable ground that the property was in a dilapidated condition. In MM 20YY, after waiting with no contact from the Council, person 3 and you contacted the Council's lawyers to enquire about the Council acquiring the property. After discussions with the Council's lawyers, the Council agreed to purchase the property. On DD MM 20YY, the Council signed a contract to purchase the property. On DD MM 20YY, person 3 and you signed the contract. On DD MM 20YY, settlement occurred.

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

Reasons for decision: Summary: Having considered the relevant facts, the Commissioner will not apply the discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension to the two-year time limit to dispose of the property. | Detailed Reasoning - Detailed reasoning: The capital gains tax (CGT) main residence exemption may apply where you dispose of a dwelling that passed to you either as an individual beneficiary or trustee of a deceased estate. 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; and • You dispose of an ownership interest in a dwelling that passed to you as a trustee of the deceased's estate within 2 years of the deceased's death. The Commissioner has the discretion to extend the 2-year period. Practical Compliance Guideline PCG 2019/5: The Commissioner's discretion to extend the 2-year period to dispose of dwellings acquired from a deceased estate (PCG 2019/5). PCG 2019/5 outlines a safe harbour compliance approach (safe harbour) that allows you to manage your tax affairs as if we had exercised the discretion to allow you a longer period. It also outlines the factors that the Commissioner will consider when determining whether or not to exercise the discretion to extend the two-year period. Generally, the Commissioner will allow a longer period where the sale of the dwelling was delayed due to reasons beyond your control. The trustee of the deceased estate must satisfy 5 conditions to qualify for the safe harbour. The first condition is that during the first 2 years after the deceased's death, more than 12 months are spent addressing one or more of the following circumstances: • the ownership of the dwelling, or the will, is challenged; • a life or other equitable interest given in the will delays the disposal of the dwelling; • administration of the estate is delayed due to the complexity of the deceased estate; • settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of the trustee's/beneficiary's control; • restrictions on real estate activities imposed by a government authority in response to the COVID-19 pandemic. The second condition is that the dwelling was listed for sale as soon as practically possible after those circumstances were resolved (and the sale was actively managed to completion). The third condition is that the sale was completed (settled) within 12 months of the dwelling being listed for sale. The fourth condition is that the following factors are immaterial to the delay in disposing of the dwelling and would weigh against the Commissioner allowing a longer period: • waiting for the property market to pick up before selling the dwelling; • delay due to refurbishment of the house to improve the sale price; • inconvenience on the part of the trustee or beneficiary to organise the sale of the house; or • unexplained periods of inactivity by the executor in attending to the administration of the estate. The fifth condition requires that there be no more than an 18-month extension to the 2-year period for disposal. In the event that the safe harbour conditions are not met, PCG 2019/5 also outlines factors that the ATO may consider when weighing up whether or not to exercise the Commissioner's discretion: • the sensitivity of the trustee's/beneficiary's personal circumstances and/or of other surviving relatives of the deceased; • the degree of difficulty locating all beneficiaries required to prove the will; • any period the dwelling was used to produce assessable income, and • the length of time the trustee/beneficiary held ownership interest in the dwelling. Paragraph 14 of PCG 2019/5 explains we weigh up all of the factors (both favourable and adverse). | Detailed Reasoning - Application to your circumstances: The property settled more than two years after the person 2's death and outside the safe harbour period. Therefore, you require the Commissioner's discretion to extend the two-year period to be eligible for an exemption. In your case, we consider as favourable factors that the property was not used for income producing purposes. We also considered that person 2 had been granted a life interest in the will that caused a delay in the disposal of the dwelling. However, the life interest ended on DD MM 20YY when person 2 passed away. The Council notified you in MM 20YY of their plan to apply a PAO on the property, for future use as a public park. This was while person 2 was still alive. The Council advised they would not acquire the property until after person 2 passed, so they could continue to live there. Person 2 passed away in MM 20YY. Although the property had a PAO applied which meant it could be acquired in the future for use as a public park, this does not mean that the delay in selling the property was beyond your control. If the PAO and proposed acquisition for a public park meant that it was impossible to sell the property on the open market, then a failure to sell would be beyond your control. However, you did not place the property on the open market because you believed, given the condition of the house, that a would not have been feasible, as potential buyers would have been deterred by the PAO and the Council's plan to eventually demolish the property and create a new public park. In this case, there was no attempt by the trustees to sell the property prior to acquisition by the Council. The delay was due to your choice to wait for the Council to acquire the property by compulsory purchase, as this would include compensation and was not due to an inability to sell the property. Although it is understandable why you made this decision, nevertheless, it was a choice and therefore not a matter that was beyond your control. In MM 20YY the Council informed you of their interest purchasing the property. In MM 20YY they informed you they were willing to pay the market value for the property as well as reasonable costs incurred in the sale, but they would not agree to pay other amounts applicable to a compulsory acquisition. Their preference was to negotiate a sale by agreement. However, they would pay for you to obtain an independent valuation of the market value of the property. It is acknowledged that the PAO, the proposed demolition of the dwelling and the creation of a public park might influence the ability to sell the property for what you considered to be market value. Consequently, you formed the view that the property would not sell on the open market for what you considered to be market value. However, it is the Commissioner's view that this did not prevent you from attempting to sell the property and instead you chose not to attempt the sale on the open market, preferring to have the Council acquire it by compulsory acquisition. The timeframe is significantly greater than the two-year period you had to dispose of the dwelling and not be liable for a capital gain or loss on the disposal. More than X years passed from the time the Council started negotiation in MM 20YY and MM 20YY, when settlement occurred. The Council stated at the outset that they would not acquire the property by compulsory acquisition but would pay market rate (based on a valuation obtained by you at their expense) plus additional amounts to cover cost associated with the sale. However, you continued your attempts to have the property acquired by the Council by way of compulsory acquisition. It is apparent that the effort to achieve what you considered to be market value through compulsory acquisition of the property by the Council delayed disposal of the dwelling. It doesn't appear the Council were the reason for delays rather the price you were willing to accept. As outlined in PCG 2019/5, waiting for the property market to pick up before selling the dwelling weighs against the Commissioner allowing a longer period. Whilst you were not waiting for the overall property market to pick up, you were waiting for the Council to acquire the dwelling by compulsory acquisition in order to achieve a higher sale price. This goes against the intent of PCG 2019/5 that an extension should not be allowed where the delay was due to efforts to achieve a higher sale price for the property. The information provided in your application does not prove the delay in selling the property was caused by any of the circumstances described as favourable factors as outlined in paragraph 12 of PCG 2019/5, for example, legal challenges to the ownership of the dwelling or challenges to the will. The Commissioner's discretion is limited to situations where it was not possible for the trustee or beneficiaries to sell the property before the time it was actually sold. The intention of the two-year period is to allow the orderly and timely sale of deceased estate property. Although there will be circumstances in which it is understandable why the trustee or beneficiaries may decide to retain the property rather than selling it, this remains a choice and in these circumstances an extension of time will not be granted. Therefore, having considered the relevant facts, the Commissioner will not apply the discretion under section 118-195 of the ITAA 1997 to allow an extension to the two-year time limit for the reasons outlined above. 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 person 1's date of death. You are also entitled to the 50% CGT discount in relation to the property.