Private ruling: Deceased estate - disposal
Date of advice: 30 October 2025
Published: 15 December 2025
Ruling period: 30 June 20XX
Date scheme commenced: DDMMYY

Ruling: Q1: Will the Commissioner exercise the discretion in section 118-195 to allow a longer period to dispose of the pre-CGT 50% interest in the farmhouse? | A1: Yes | Q2: Will the disposal of the Pre-CGT interest in the farmhouse include 2 hectares of land? | A2: Yes | Q3: Will a partial main residence exemption apply under section 118 - 200 to the 50% post-CGT interest in the farmhouse? | A3: Yes | Q4: Will the disposal of the post-CGT interest include 2 hectares of land? | A4: No

Relevant facts and circumstances: Detailed timeline of events On DDMMYY Person A purchased the property On DDMMYY, Person A married the deceased and sold half their interest % in the Crown Land to the deceased as joint tenants After 20 September 1985 the Crown Land - Perpetual Country Lease (as freehold Agricultural Farm tenure) held by Person A and the deceased entered into an agreement to convert the existing Crown Land (Perpetual Country Lease) into freehold title On DDMMYY, the Crown land changed to Freehold title using the rollover relief provision Person A and the deceased surrender a right the Crown Land (Perpetual Country Lease) and acquire a new right (the freehold title) as a replacement asset Therefore, in accordance with the replacement asset roll-over, Person A and the deceased (as joint tenants) are taken to have acquired the freehold title on the date that the Crown Land (Perpetual Country Lease) was originally acquired prior to 20 September 1985. The property while titled as freehold Agricultural Farm was the main residence of both Person A and the deceased On DDMMYY, Person A passed away. The deceased as a joint tenant automatically obtained Person A's share in the property (Post CGT share) The deceased continued residing in the farmhouse until DDMMYY On DDMMYY, the deceased moved into a nursing home On DDMMYY, the deceased passed away. Between DDMMYY to DDMMYY the farmhouse remained vacant, while the cottage was being rented From MMYY to MMYY the property was used to earn assessable income with a short period of time during MMYY to MMYY that the property was vacant due to renovations being carried out on the property preventing it from being rented out On DDMMYY, the sales contract was signed On DDMMYY, settlement of the sale occurred Specifics regarding the Property: The property is X hectares. The property is made up of 2 lots, X & X. Lot X is X hectares and has both a farmhouse and cottage located on it. Lot X is X hectares and has no structures on it. The farmhouse was the deceased's main residence. The cottage on the property was used as a rental property between DDMMYY to DDMMYY. From DDMMYY to DDMMYY the property was used to produce rental property income During the period DDMMYY to DDMMYY, the rental income from the property was not reported as it was below the tax threshold for the time From DDMMYY to DDMMYY, the property underwent renovation and remained vacant during this period During the period DDMMYY to DDMMYY, the rental property income was reported by the deceased From DDMMYY until DDMMYY once the renovation were competed the property was then used to produce rental income From DDMMYY to DDMMYY, the rental property income and expenses were reported by the deceased estate The sales contract was signed on DDMMYY for the sale of the property Settlement occurred on DDMMYY

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 118-195 | Income Tax Assessment Act 1997 Section 118-195(1) | Income Tax Assessment Act 1997 Section 118-200 | Income Tax Assessment Act 1997 Section 118-200(2) | Income Tax Assessment Act 1997 Section 118-200(3) | Income Tax Assessment Act 1997 Section 118-205 | Income Tax Assessment Act 1997 Section 118-205(2)(b)

Reasons for decision: Detailed Reasoning - Relevant law and policy:: All references made are to the Income Tax Assessment Act 1997 unless otherwise specified. | Detailed Reasoning - Commissioners' discretion for deceased estates.: Under 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 paragraphs 1-3 state: 1. Section 118-195 disregards capital gains and capital losses made from certain CGT events that happen in relation to a dwelling that: i. was a deceased person's main residence and was not being used to produce assessable income just before they died, or ii. was acquired by the deceased before 20 September 1985. 2. 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. The Commissioner has the discretion to extend the 2-year period. 3. Generally, we will allow a longer period where the dwelling could not be sold and settled within 2 years of the deceased's death due to reasons beyond your control that existed for a significant portion of the first 2 years. The factors we will consider when deciding whether to exercise the discretion to extend the 2-year period. Circumstances that took more than 12 months to resolve One or more of the following circumstances must have taken more than 12 months to address: • the ownership of the dwelling, or the will, is challenged • a life tenancy or other equitable interest given in the will delays the disposal of the dwelling • the complexity of the deceased estate delays the completion of administration of the estate • settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of your control, or • restrictions on real estate activities imposed by a government authority in response to the COVID-19 pandemic. Circumstances that cannot be material to delays in disposal In order to qualify for the safe harbour, none of the following circumstances can have been material to the delay in disposing of your interest: • waiting for the property market to pick up before selling the dwelling • waiting for refurbishment of the dwelling to improve the 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. You may be entitled to a partial exemption for any capital gain or loss made from the disposal of your ownership interest in a dwelling if section 118-195 does not apply. This Guideline applies equally in relation to the Commissioner's discretion to extend the 2-year period for partial exemptions Extending the 2-year period - exercising the Commissioner's discretion In considering whether to extend the 2-year period, we weigh up all of the factors (both favourable and adverse) having regard to the facts and circumstances of the case. In practice, the facts we would consider in deciding whether to exercise the discretion would be fully understood only once the sale of the dwelling is completed. Ordinarily, it would be difficult for us to exercise our discretion prior to that time. Our general administrative approach is to exercise our discretion after the settlement of the sale of the dwelling. However, in some circumstances we may consider exercising our discretion prior to settlement of the sale of the dwelling where clarity is needed to resolve a matter. Factors that would weigh in favour of us allowing a longer period include those listed in paragraph 12 of this Guideline. The absence of some or all of those favourable factors does not necessarily preclude us from allowing a longer period. Factors that would weigh against us allowing a longer period include those listed in paragraph 13 of this Guideline. Other factors that may be relevant to the exercise of our discretion (but are not relevant for the safe harbour) include but are not limited to: • the sensitivity of your personal circumstances and of other surviving relatives of the deceased • the degree of difficulty in locating all beneficiaries required to prove the will • any period the dwelling was used to produce assessable income, and • the length of time you held the ownership interest in the dwelling. How much weight we give to each factor will depend upon the circumstances of each particular case. The circumstances that caused the delay in disposing of the ownership interest are more important than the length of the delay. The amount of any potential capital gain or loss is not relevant to whether the discretion is exercised. We will not allow a longer period for even a very short delay beyond 2 years if there are no relevant circumstances present. Likewise, a lengthy delay will not prevent us from allowing a longer period where relevant circumstances caused the delay and persisted for the overwhelming majority of the total period. | Detailed Reasoning - Section 118-195 - Dwellings acquired from a deceased estate: "The deceased *acquired the *ownership interest before 20 September 1985 and your *ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner." Subsection 118-195(1) states: A capital gain or capital loss you make from a CGT event that happens in relation to a dwelling, or your ownership interest in it, is disregarded if: (a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and (b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied. Table 1 Beneficiary or trustee of deceased estate acquiring interest | Detailed Reasoning - Section 118-110 - Main Residence Exemption: Generally, a dwelling is considered to be your main residence if: • you and your family live in it • your personal belongings are in it • it is the address your mail is delivered to • it is your address on the electoral roll • services such as gas and power are connected. The length of time you stay in the dwelling and whether you intend to occupy it as your home may also be relevant. To be your main residence, your property must have a dwelling on it and you must have lived in it. | Detailed Reasoning - What is a dwelling: Under section 118-115 a dwelling is anything used wholly or mainly for residential accommodation, such as: • a house or cottage • an apartment or flat • a strata title unit • a unit in a retirement village • a caravan, houseboat or other mobile home. A flat or home unit often includes areas that are physically separate, such as a laundry, storeroom or garage. They are exempt from CGT on the same basis as the flat or unit. However, if you dispose of one of these structures separately from the flat or home unit (for example, you sell the garage), they are not exempt from CGT unless they were compulsorily acquired. However, except as provided in section 118-120, a dwelling does not include any land adjacent to a building Main Residence Exemption eligibility Your main residence (your home) is exempt from CGT if you're an Australian resident and the dwelling: • has been the home of you, your partner and other dependants for the whole period you have owned it • hasn't been used to produce income - that is, you have not run a business from it, rented it out or 'flipped' it (bought it to renovate and sell at a profit) • is on land of 2 hectares or less. If you meet these conditions, you don't pay tax on any capital gain when you sell your home and you ignore any capital loss. If you don't meet all these conditions, you may still be entitled to a partial exemption. You can work out the proportion that is exempt using the CGT property exemption tool. Which part of your land is exempt When selling your home you can claim the main residence exemption from capital gains tax (CGT) for up to 2 hectares of the land your home is on. If your land is used for private purposes and is greater than 2 hectares, you can choose which 2 hectares are exempt. The rest is subject to CGT. If any part of the land is used to produce income it is not exempt. This is the case even if the total land area is less than 2 hectares. The 2 hectares you choose must include the land that is under your dwelling. | Detailed Reasoning - Example: land used for private purposes: Mohammed bought a house with 15 hectares of land. He used 10 hectares for apple farming and 5 hectares for private purposes. Mohammed can get the main residence exemption for: • the house • 2 hectares of land he selects out of the 5 hectares that he uses for private purposes (the land he selects must include the land under the house). After 9 years, Mohammed decided to sell. He had his house valued. The valuation stated that the house and the 2 hectares of land he had selected were worth two-thirds of the total value of the property. Mohammed can claim the main residence exemption for two-thirds of the capital gain on the sale of the property. Land adjacent to a dwelling Under section 118-120 (2) & (3) Main residence exemption applies to a dwelling's adjacent land if the same CGT event happens to that land or your ownership interest in it as if it were a dwelling. Land adjacent to a dwelling is its adjacent land to the extent that the land was used primarily for private or domestic purposes in association with the dwelling. The land a dwelling is actually on is included as part of the dwelling and is not part of adjacent land. The maximum area of adjacent land covered by the exemption for the CGT event is 2 hectares, less the area of the land immediately under the dwelling. In this case, where the adjacent land was used for private purposes and is greater than two hectares, you can choose which two hectares are exempt and the remainder will be subject to CGT. Using a home you inherited to produce income If a person acquired their main residence on or after 20 September 1985, and they died and it passed to you as a beneficiary (or as trustee of their estate) after 20 August 1996, you are taken to have acquired the dwelling at its market value at the time you first used it to produce your income if: • you first used the dwelling to produce income after 20 August 1996 • when a CGT event happens to the dwelling, you would get only a partial exemption because you used the dwelling to produce assessable income during the period you owned it • you would have been entitled to a full exemption if the CGT event happened to the dwelling immediately before you first used it to produce income • the CGT event did not happen to the dwelling within two years of the person's date of death. If all of the above apply, you must work out your capital gain or capital loss using the market value of the dwelling at the time you first used it to produce income. You do not have a choice. Continuing main residence status If the deceased was not living in the home at the date of their death, they or their trustee may have chosen to continue to treat it as their main residence. You may need to contact the trustee or the deceased's recognised tax adviser to find out whether this choice was made. If it was, the dwelling can still be regarded as the deceased's main residence: • for an indefinite period, if the dwelling was not used to produce income after the deceased stopped living in it, or • for a maximum of six years after they stopped living in it, if it was used to produce income after they stopped living in it. | Detailed Reasoning - Partial exemption: If you do not qualify for a full exemption from CGT for the property under section 118-195, you may be entitled to a partial exemption. You calculate your capital gain or capital loss as Capital gain or capital loss amount × (non-main residence days ÷ total days) Non-main residence days 'Non-main residence days' is the number of days that the dwelling was not the main residence. 1. If the deceased acquired the dwelling before 20 September 1985, non-main residence days is the number of days in the period from their death until settlement of your contract for sale of the dwelling when it was not the main residence of one of the following a. a person who was the spouse of the deceased (except a spouse who was permanently separated from the deceased) b. an individual who had a right to occupy the dwelling under the deceased's will, or c. you, as a beneficiary, if you disposed of the dwelling as a beneficiary. 2. If the deceased acquired the dwelling on or after 20 September 1985, non-main residence days is the number of days calculated under (a) plus the number of days in the deceased's period of ownership when the dwelling was not their main residence. Total days 1. If the deceased acquired their ownership interest before 20 September 1985, 'total days' is the number of days from their death until you disposed of your ownership interest. 2. If the deceased acquired the ownership interest on or after 20 September 1985, total days is the number of days in the period from when the deceased acquired the dwelling until you disposed of your ownership interest. A further adjustment may be required if the dwelling was a main residence, but was partly used to produce income, for example, if, for a period, part of it was rented out or used as a place of business. Partial exemption formula Section 118-200 provides for a partial exemption where an individual receives an ownership interest in a dwelling or a dwelling as a beneficiary of a deceased estate or they owned it as the trustee of a deceased estate. A taxpayer may receive a partial exemption if: (a) They are an individual and their ownership interest in a dwelling that passes to them as a beneficiary in a deceased estate, or they owned it as the trustee of a deceased estate; and (b) Section 118-195 of the ITAA 1997 does not apply. The relevant formula in subsection 118-200(2) for determining how much of a capital gain or loss is not exempt is: Capital gain or capital loss amount x (non-main residence days/ total days) In this case, non-main residence days is the sum of: (a) The number of days in the deceased's ownership period when the dwelling was not the deceased's main residence and (b) The number of days in the period from the deceased's death until the taxpayer's ownership interest ends when the dwelling was not the main residence of an individual referred to in item 2, column 3 of the table in section 118-195 Total days is the number of days in the period from the acquisition of the dwelling by the deceased until the taxpayer's ownership interest ends The total days formula is therefore adjusted so that you add the fewer of: • The number of days between 20 September 1985 and the day the ownership interest passed to the most recently deceased (paragraph 118-205(2)(a) of the ITAA 1997) and • The number of days between the time when an ownership interest in the dwelling was last acquired on or after 20 September 1985 by an individual, except as a beneficiary in or a trustee of a deceased estate, and the day when the interest passed to the most recently deceased (paragraph 118-205(2)(b) of the ITAA 1997) For the purposes of section 118-200(3), the taxpayer can adjust the formula by ignoring any non-main residence days and total days in the period from the deceased's death until the ownership interest ended if, a) The deceased acquired the ownership interest on or after 20 September 1985; and b) Your ownership interest ends within: (i) 2 years of the deceased's death; or (ii) a longer period allowed by the Commissioner; and c) You get a more favourable result by doing so. | Detailed Reasoning - CGT Discounts: Under Division 115, Australian resident individuals, trusts, and super funds can use the CGT discount to reduce their capital gain on assets they have owned for 12 months or more. For the purposes of qualifying for the CGT discount, you can treat an inherited asset as though you have owned it since: • the deceased acquired the asset, if they acquired it on or after 20 September 1985 • the deceased died, if they acquired the asset before 20 September 1985. | Detailed Reasoning - Further issues to consider: How cost-based impacts are calculated with pre and post CGT events. | Detailed Reasoning - Question 1 & 2: Will the Commissioner exercise the discretion in section 118-195 to allow a longer period to dispose of the pre-CGT % interest? | Detailed Reasoning - Summary:: The Commissioner will grant discretion for the pre-CGT interest. This means you can claim a full exemption for up to 2 hectares of land. The remaining land is subject to CGT but as the property was held longer than 12 months, may be eligible for a 50% discount under Div 115. | Detailed Reasoning - Applicable to your circumstances: Exercising of Commissioners discretion The Commissioner may exercise his discretion under section 118-195 to extend the 2 years for the % ownership interest obtained pre-CGT where there are relevant circumstances that prevented the disposal of the property within the 2-year timeframe. While you were mindful of the 2 year limit due to the size of the property you approached a X Person to get written submission to X Review Project Team to request a change of zoning for the property. You also approached the local council to see if they would be interested in the property to extend the current X Fields. X and the Local council were not interested in the property, so you then approached a local real estate agent, you did advise them that you needed the sales contract settled by DDMMYY. The property attracted much attention, and you received many offers that did not result in signed contracts. You received a signed contract for half of the farm on DDMMYY, but the buyers pulled out on DDMMYY. You received another sales contract with a settlement date of DDMMYY, however on DDMMYY the buyer's bank had asked that you extend the settlement date to DDMMYY, and you agreed to this to make sure the sale was completed. While the property sold within the 2-year time period already provided, the sale of the property was not settled until DDMMYY, this falls just outside of the 2-year period due to circumstances outside of your control. The Commissioner will therefore exercise his discretion to allow a longer period of time for the pre-CGT interest as you meet the requirements under 118-195(1). Pre-CGT Discounts that may apply: Under section 118-120(3), the maximum area of adjacent land that can be covered by an exemption for a CGT event is 2 hectares less the area of land immediately under the dwelling. In your situation, as the Commissioner has exercised his discretion, you can apply the 50% CGT discount for adjacent land that is not eligible for full main residence exemption on the pre - CGT % ownership interest under Division 115. Question 3 & 4 Will a partial main residence exemption apply under section 118-200 to the dwelling for the post-CGT interest? | Summary: When 118-195 doesn't apply to a dwelling, a partial main residence exemption may apply under section 118-200. In your case, section 118-195 doesn't apply to post CGT interest, because the deceased only lived in the property for some of the ownership period, the property was not the deceased main residence at the date of their death and was being used to produce assessable income prior to and after the deceased passed away. As you do meet the requirements under section 118-195, you are eligible for a partial main residence exemption under section 118-200. Any capital gain that doesn't fall under the partial main residence exemptions may be eligible for the 50% discount as the property was held for longer than 12 months. This applies to the dwelling for post CGT interest and land not caught under the partial residence exemption (i.e., excess of 2 hectares). | Detailed Reasoning - Applicable to your circumstances: Person A passed away in 20XX, and his % ownership interest in the land automatically transferred to the deceased as joint tenants creating 2 different ownership interests times - pre-CGT and post CGT ownership interest. The deceased remained residing at the property in the farmhouse dwelling until MMYY, when the deceased moved into a nursing home. The farmhouse was then used to earn assessable income from DDMMYY until the settlement date of DDMMYY, with a brief period between MMYY to MMYY, where the property remained vacant due to renovations being carried out, once the renovations where completed the property was once more used to produce assessable income. As the property was utilised for the purposes of producing assessable income, the exemption under section 118-195 does not apply, therefore, a partial exemption will be available under section 118-200 for the post-CGT interest. As the deceased was not living in the property at their date of death and the property was being used to produce income you can chose to treat the property as the deceased main residence for a maximum of 6 years under the absence rule for the purposes of calculating the partial exemption. Any capital gain that doesn't fall under the partial exemption may be eligible for the 50% discount as the property was held for longer than 12 months. This applies to the dwelling for post CGT interest and land not caught under the partial exemption (i.e., excess of 2 hectares).