10. CGT on properties acquired by the deceased pre-September 1985

ATO’s practical approach and their discretion to extend the two year period on the sale of a deceased’s main residence.

Current at 1 January 2022

10. CGT on properties acquired by the deceased pre-September 1985

ATO’s practical approach and their discretion to extend the two year period on the sale of a deceased’s main residence.

Current at 1 January 2022

Generally, a legal personal representative (LPR) has two years to complete the sale of a deceased’s main residence that was acquired on or after 20 September 1985 (or any dwelling that the deceased acquired prior to that date) without attracting capital gains tax: subsection 118- 195(1) of Income Tax Assessment Act 1997.

A commonly overlooked requirement of this exemption by both legal and accounting practitioners is that the contract of sale must settle within two years of the deceased’s date of death. It is not sufficient that a contract of sale be entered into in that time. The two-year settlement stipulation is an idiosyncrasy that relates solely to deceased estates. This can have disastrous flow-on effects particularly for the (LPR) if a tax liability is discovered after the estate assets have been distributed. The LPR could be personally liable for any unpaid tax.

For the 2008/09 and later income tax years, the Commissioner has the discretion to extend the two-year period. On 27 June 2019, the ATO published Practical Compliance Guideline PCG 2019/5. This PCG applies both before and after its date of issue.

It provides LPR’s and their advisers with detailed guidance on factors that the Commissioner will consider in exercising the discretion to extend the two-year period without attracting CGT.

It also provides a safe harbour compliance approach. If an LPR or beneficiary’s circumstances are consistent with the conditions in the PCG, they can manage their tax affairs as if the Commissioner had allowed them a period longer than two years. In a subsequent compliance check, the ATO will ensure these conditions were met, but will not seek to determine whether or not they would have exercised the discretion.

The safe harbour conditions are as follows:

  • during the first two years after the interest in the dwelling passed to the LPR or beneficiary, more than 12 months was spent addressing issues such as:
  • the ownership of the dwelling, or the Will was challenged
  • the grant of a life or other equitable interest under the Will delayed the disposal of the dwelling
  • the complexity of the deceased estate delayed the completion of administration of the estate, or
  • settlement was delayed or fell through for reasons outside the LPR’s control; or the completion of the estate’s administration was delayed because of its complexity.
  • the dwelling was listed for sale as soon as practically possible after the above circumstances were resolved (and the sale was actively managed to completion)
  • the sale completed (settled) within six months of the dwelling being listed for sale
  • the delay in the sale of the property was not due to reasons such as:
  • the LPR waiting for the property market to pick up before selling the dwelling;
  • the house being refurbished to improve its sale price;
  • it was inconvenient for the LPR to organise the sale of the dwelling; or
  • for any other unexplained periods of inactivity by the LPR in administering the estate;


  • the longer period for which you would otherwise need the discretion to be exercised is not more than 18 months.

Where circumstances fall outside of the safe-harbour, a request must be made to the Commissioner to exercise the discretion. Additional factors that may be relevant to the exercising of the Commissioner’s discretion (but are not relevant for the safe harbour) include but are not limited to:

  • the sensitivity of your personal circumstances and/or 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.

We welcome the issue of the PCG which demonstrates the ATO’s continued commitment to provide meaningful and practical guidance to assist LPR’s manage tax-related issues.

If an extension of the two-year rule cannot be applied

Where a property is settled outside the two-year period and the safe harbour conditions in PCG 2019/5 are not satisfied and the Commissioner will not exercise the discretion to extend that period, then CGT may apply. The LPR or beneficiary would need to obtain a market valuation of the property at the deceased’s date of death. Any capital growth from the date of death until the sale of property would be subject to capital gains tax.

Helpful Tips: Work out whether there will in fact be a capital gain from the sale of the property. In some instances, there may actually be a capital loss and it would be more beneficial not to apply the safe harbour or request an extension of the two-year period.



Feel free to contact our team should you want to discuss this topic further and potentially have clients who may be in this situation.



This publication is not intended to be and should not be used as a substitute for taking taxation advice in any specific situation. The information in this publication may be subject to change as taxation, superannuation and related laws and practices alter frequently and without warning.  Neither BNR Partners Pty Ltd, our employees or agents are responsible for any errors or omissions or any actions taken or not taken on the basis of this publication.