Private ruling: CGT - deceased estates
Date of advice: 15 August 2025
Published: 20 October 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 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.

Relevant facts and circumstances: The deceased acquired the property at XX XX XX XX on DD MM 20YY. The property is less than 2 hectares. The dwelling was the deceased's main residence and never used to produce income until their death. The deceased passed away on DD MM 20YY. Probate was granted on DD MM 20YY to the deceased's sibling and their spouse as executors. The deceased bequeathed their estate in its entirety to their parents. The property was appraised by a real estate agent on DD MM 20YY. The balance of the deceased's superannuation was settled in MM 20YY. The property title was transferred to the beneficiaries on DD MM 20YY. You advised that as your child had just passed away you didn't want to part with their house. A neighbour approached you inquiring if you would rent the property to their child, and you agreed on the understanding that it would only be for the next year or so. You rented property through a real estate agent under a six month lease commencing on DD MM 20YY and expiring on DD MM 20YY. On DD MM 20YY renting laws were changed through the COVID-19 XX (XX XX) Act 20YY . From this time, it was no longer possible for a landlord to give notice to a tenant to vacate a rented premises. Fixed-term tenancies automatically converted to periodic tenancies if they expired during the period. Landlords could not increase rent, issue a notice to vacate, or evict a tenant if the tenant was behind in rent due to COVID-19, until after DD MM 20YY. A tenant could still be evicted in certain circumstances, but only if the landlord first obtained a termination order. The rental moratorium ended on DD MM 20YY. COVID-19 lockdowns ceased in MM 20YY. The tenants vacated the property on DD MM 20YY. You undertook minor work on the property including replacement of carpet, dishwasher and letterbox, interior painting, repairs to the bathroom ceiling, re-staining of deck, garden maintenance and garage door repair. A contract for sale was signed on DD MM 20YY with settlement occurring on DD MM 20YY.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1997 section 118-192 | Income Tax Assessment Act 1997 section 118-200

Reasons for decision: Summary: Section 118-195 of the ITAA 1997 provides a capital gains tax (CGT) exemption to beneficiaries and trustees where a CGT event happened to a dwelling they acquired from a deceased estate if: • the property was acquired by the deceased before 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 with two years of the deceased's death or within a longer period allowed by the Commissioner, or • the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of: - the spouse of the deceased immediately before death, or - an individual who had a right to occupy the dwelling under the deceased's will; or - the individual to whom the ownership interest is transferred as a beneficiary and is then sold by that individual. The property was the deceased's main residence until just before they passed away and was not used to produce assessable income at that time. The property settled more than two years after the deceased's death. Therefore, you require the Commissioner's discretion to extend the two-year period to be eligible for an exemption. | Detailed Reasoning - Commissioner's discretion: 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) outlines the factors that the Commissioner will consider when determining whether or not to exercise the discretion to extend the two-year period under section 118-195 of the ITAA 1997. Generally, the Commissioner will allow a longer period where the sale of the dwelling was delayed due to reasons beyond your control. The executor or beneficiary of the deceased estate must satisfy 5 conditions to qualify for the safe harbour. The first condition is that, during the initial 2-year period after the deceased's death, over 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 must be listed for sale as soon as practically possible after those circumstances are resolved. Three, the sale must be settled within 12 months of the listing. Four, 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 final 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, the PCG 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). In doing that, the Commissioner considers the factors within the whole of the period between the date the deceased passed away and completion of the sale of the dwelling. The Commissioner must consider the reasons for the delay starting in the first two years. In your case, during the first 12 months after the deceased's death there were no extenuating circumstances that are considered complex that prevented the estate being administered in that, there were no factors or circumstances under the first condition that apply. We consider as a favourable factor that the property was not used for income producing purposes at the time of the deceased's death. We also considered that once the property was vacant, a contract of sale was promptly executed and settled. We also considered that in the first two years: • there was no challenge to the ownership of the property or to the deceased's will; • there was no life interest in the deceased's will that caused a delay in the disposal of the dwelling; • there were no factors from the time of the deceased's death that explain the beneficiaries' inability to attend to disposing of the property. • there was no delay in settlement of the contract of sale over the property. Although we acknowledge this was a time of grief for you, the additional time taken to dispose of the dwelling beyond the deceased's passing is a factor that weighs against the Commissioner allowing a longer period. The decision by the beneficiaries to have the property title transferred to them and to then retain the dwelling was a choice. While the property was mortgaged, this in itself does not prevent the disposal of a dwelling from a deceased estate. There was no application for discharge of the mortgage with the lender at settlement. You advised that you did not want to part with the dwelling for personal reasons. However, you later began renting the property. You commenced renting the property more than XX months after the deceased's death, and the decision to lease the property was also a choice. We acknowledge the COVID-19 measures impacted your ability to have the tenants vacate the property at the end of their lease, which was further complicated by the tenants' experiencing illness and loss of income. Nevertheless, the moratorium on rental evictions ended at the end of MM 20YY and COVID-19 lockdowns affecting movement ended in MM 20YY. The property remained tenanted on a rolling lease until MM 20YY. The delay in selling the dwelling was not caused by any of the circumstances described as favourable factors, and therefore, you cannot rely on the safe harbour. You do not satisfy the conditions to be eligible for a full main residence exemption under section 118-195 of the ITAA 1997. The capital gain or loss on disposal of your ownership interest in the property cannot be disregarded in the income year ended 30 June 20XX when the CGT event occurred. There was no challenge to the ownership of the property or the deceased's will. There were no unforeseen or serious personal circumstances arising such that you were unable to attend to disposal of the dwelling in the first 2 years There were periods of inactivity after the grant of probate. There was no unexpected delay for settlement of a contract of sale over the property. 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. Therefore, 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 deceased's date of death. You are also entitled to the 50% CGT discount in relation to the property.