Loss of main residence exemption in deceased estates & right to occupy
09/02/2026
The ATO have issued draft tax determination TD 2026/D1, providing their view on what it means for an individual to have the ‘right to occupy the dwelling’ under the deceased’s will.
What the draft determination covers
Draft taxation determination (TD 2026/D1) outlines the Australian Tax Office’s (ATO’s) view on the meaning of right to occupy the dwelling under the deceased’s will, as set out in item 2(b) of Column 3 of Subsection 118-195(1) of the ITAA 1997.
The determination considers the right to occupy a dwelling which can have an impact on whether the capital gain or loss can be disregarded under the ‘main residence’ rules.
The right to occupy must be granted under the terms of the deceased will to an individual named in the Will or as a result of a court order.
When the main residence exemption may not apply
The CGT impact of the sale of the dwelling may not be disregarded if the right to occupy occurs through one of the following ways. Careful consideration needs to be given to the rules and examples outlined in the TD.
This includes situations where:
- right to occupy under a separate agreement
- right to occupy using broad trustee discretion
- right to occupy and testamentary trusts. The determination has raised issues that need to be carefully considered for testamentary trusts that affect life and remainder interests.
How SW can help
These rules can be complex, particularly where a right to occupy is intended but the conditions are not met. In those situations, there is a real risk of capital gains tax consequences on the sale of the deceased person’s main residence because the main residence exemption may not apply.
We regularly assist lawyers, administrators and executors of deceased estates to ensure that the estates tax obligations are met. Our Deceased Estate Consulting specialists, Heather Dyke and Taylah Cooke, also review the Estates income tax obligations under subsection 118-195 of ITAA 1997.
Contributors
Heather Dyke - Deceased Estate Consulting
Taylah Cooke - Deceased Estate Consulting