Proposed tax changes are sharpening the focus on inherited property, with implications that real estate agents are likely to feel on the ground.
At the centre of the debate is the ATO’s draft determination TD 2026/D1, which clarifies when an inherited home can retain the capital gains tax main-residence exemption under section 118-195 of the Income Tax Assessment Act 1997.
Under the draft, estates can still sell a deceased person’s main residence within two years without CGT, but if the property is held longer, the exemption will only apply if a beneficiary has a right to occupy the dwelling under the will and actually lives in the home.
Merely holding the property through a testamentary trust, or allowing informal occupation, will no longer be enough.
The determination replaces several long-standing ATO interpretative decisions, signalling a stricter reading of the legislation rather than a continuation of past practice.
Tax advisers warn this could prompt families to bring forward sales of inherited homes to avoid large CGT liabilities, particularly in high-value markets where properties may have been held for decades.
For agents, that may translate into a rise in time-sensitive estate listings and more complex conversations with grieving vendors who are weighing tax exposure against market conditions.
These concerns are unfolding alongside the federal government’s proposed Division 296 superannuation tax, which advisers have also described as a stealth inheritance tax because of how it compounds existing super death taxes.
Together, the measures are reshaping how wealth is transferred and how quickly property must be sold after death.
While the ATO insists TD 2026/D1 is a clarification and remains in draft form, the reaction from advisers suggests the practical impact could be significant.
For real estate professionals, understanding the mechanics of the two-year rule, the requirement for an express right to occupy, and the limits of testamentary trusts will be increasingly important when advising clients on inherited property sales.
