2 hours ago
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Julia Hartman
February 24, 2026 — 2:05pm
Delays in administrating an estate can now have huge tax consequences according to the ATO’s latest draft ruling, which will tax everything from the family home to wedding rings if a second parent dies before the estate of the first parent is finalised.
When CGT was introduced in 1985, the voting public still had memories of the financial hardship caused by death taxes in the past. It was certainly a dirty word. Paul Keating wanted to be clear that CGT was not a death tax by another name.
Section 128 of the Income Tax Assessment Act allows a deceased’s assets to be transferred to a beneficiary without any CGT consequences. The beneficiary is treated as if they have owned the asset in the same way as the deceased, they inherit the deceased’s cost base. It also allows the deceased’s home to transfer with a cost base of market value at date of death.
The sticking point is that the Act refers to “a CGT asset you owned just before dying”. If the beneficiary dies before they actually own the asset, then their estate, when distributing to their heirs, does not get the advantages of the rollover, and there will be no reset to market value even if the beneficiary is living in the home when they die.
It also means that none of the main residence concessions will apply in the beneficiary’s estate’s case, such as two years to sell or longer period if the spouse is living there. Worst still is that when the beneficiary’s estate is dealt with by passing the property to their heirs, there will be a CGT event.
The beneficiary’s estate will have to pay CGT on the difference between the current market value and the original deceased’s cost base, if it was not the original deceased’s home. If it was the original deceased’s home, then CGT will be payable on the difference between the market value when the beneficiary died and the market value when the original deceased died, plus holding costs etc.
All that you can do is make sure estates are wound up as quickly as possible.
This tax will be payable by the beneficiary’s estate, leaving less for the residual beneficiaries or forcing the family home to be sold to pay the tax. None of the concessions intended to protect the family home passing through to children will apply, simply because there was not enough time between deaths to administer the estate.
When there is just one beneficiary, there used to be no rush to wind up the estate, it could take years. Consider older couples who are not likely to out live each other by much, or in the case of a couple, being killed in the same accident. Or when the will covers children who have not come of age to receive their distribution. This will disproportionately hurt young families.
This is not just about the family home. If Mum dies, Dad might receive her wedding ring. But if he dies before Mum’s estate is administered, the ring may pass down to the children, then CGT will be payable as if the Dad’s estate had sold it at market value.
This is not new legislation or result of a test case, and the ATO say they are “confirming their interpretation of section 128”. Therefore, the ruling is likely to apply retrospectively despite an entirely different interpretation appearing in private rulings for the last 40 years.
Very different tax outcomes depend on nothing more than the timing of events, so let’s hope common sense prevails. Meanwhile, all that you can do is make sure estates are wound up as quickly as possible.
Not having a will means more delays and more chance of falling into this tax trap. Holding the family home as joint tenants may avoid this problem, but you need to seek advice, if the home already has some CGT exposure tenants in common maybe a better option.
Julia Hartman founded BAN TACS Accountants more than 30 years ago and is still passionate about all things tax.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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