Private ruling: Capital gains tax
Date of advice: 18 August 2025
Published: 20 October 2025
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you required to pay Capital gains Tax (CGT) on the sale of the blocks of land and house inherited from your relative? | A1: Yes. | Q2: Is the property entitled to a partial main residence exemption for the period from the date your relative passed away up until your second relative passed away? | A2: Yes. (The main residence exemption can only be applied to a maximum of 2 hectares) | Q3: Are you entitled to the 50% discount on the sale of the house and blocks of land? | A3: Yes.

Relevant facts and circumstances: Your relative passed away a number of years ago. They bequeathed you blocks of land. This land was inherited by your relative from their parent. Some of the blocks were vacant land and one had your relative's main residence on it (the property). The lots vary in size (The largest lot contains the main residence). Your relative gave your second relative a life interest in the property. Your second relative remained in the property until they moved into a care facility. Your second relative moved into a care facility sometime within a couple of years of them passing away. Your second relative passed away a number of years after the first relative. The property was rented out by your second relative when they went into care as they were not able to insure the property without someone living in it. All properties were transferred to you after the second relative's death. The property continued to be rented from your second relative's date of death over a number of months and you declared this income in your tax return. You rented the property out for a period through a real estate agent as a holiday home and you declared this income in your tax return. You never lived in the property as your main residence. You and your family used the property for a holiday home. Your main residence is in another location. You intend on selling the blocks of land and house in the next few months.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-195

Reasons for decision: Summary: You make a capital gain or loss because of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985. CGT events are those transactions that occur to a CGT asset that result in you either making a capital gain or capital loss. You make a capital gain if your capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if you receive more for an asset than you paid for it. You make a capital loss if your reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset, for example, if you receive less for an asset than you paid for it. Capital gains tax is not a separate tax, it forms part of your assessable income and is taxed at your marginal tax rate. | Detailed Reasoning - CGT main residence: Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. To qualify for full exemption, the dwelling must have been your main residence for the whole period you owned it, the ownership period, and must not have been used to produce assessable income. If a taxpayer inherits an ownership interest, subsection 118-195(1) of the ITAA 1997 applies so that any capital gain or capital loss they make from a CGT event that happens in relation to a dwelling or their ownership interest in a dwelling is disregarded if: • They are an individual and the interest passed to them as a beneficiary in a deceased estate, or they owned it as the trustee of a deceased estate; and • The deceased acquired the ownership interest 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 • Their ownership interest ends within two years of the deceased's death, or within a longer period allowed by the Commissioner. Where the deceased acquired the property prior to 20 September 1985, the dwelling was from the deceased death until your ownership interest ends the main residence of one of the following: • the spouse of the deceased immediately before their death (but not a spouse who was permanently separated from the deceased) • a person who has a right to occupy the property under the deceased's will • you, as a beneficiary, if you dispose of the property as a beneficiary. Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example: • The ownership of a dwelling or a will is challenged. • The complexity of a deceased estate delays the completion of administration of the estate. • A trustee or beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the two-year period (for example, the taxpayer or a family member has a severe illness or injury). In your case the property in question being the blocks of land of which one has the main residence of your relative was acquired by them pre-1985. They left a life interest in the property to your second relative who passed away years later. Under Section 118-195 of the ITAA 1997 only the house and up to 2 hectares could be exempt from CGT. Given that the house and up to 2 hectares was not sold within the 2 year time under the legislation and that your second relative was given a life interest in the house and land up to 2 hectares a partial exemption will apply for the relevant period. You made no attempts to sell the land and house after your second relative passed away and this is why only a partial main residence exemption will apply to the house and up to 2 hectares of land. The land over and above the 2 hectares and the remaining blocks of land will be subject to CGT. The first element of the cost base when calculating the CGT will be the market value of the blocks and house at the date of death of your relative as the land and house are not pre-CGT assets in your hands as beneficiary.