Draft Taxation Determination – TD 2026/D1 – meaning of “right to occupy the dwelling under the deceased’s will”
17 March 2026
On 12 March 2026, the Law Council provided a submission to the Australian Taxation Office (ATO)’s consultation on a draft tax determination about the meaning of the phrase “right to occupy the dwelling under the deceased’s will” in subsection 118-195(1) of the Income Tax Assessment Act 1997 (Cth) (ITAA).
Our submission was informed by input from the Law Society of New South Wales, the Law Council’s National Elder Law and Succession Law Committee and the Business Law Section’s Taxation Committee.
The submission broadly accepts the Commissioner’s approach to the operation of subsection 118‑195(1) of the ITAA, and acknowledges the importance of clarity and consistency in the administration of the main residence exemption in the context of deceased estates. However, we raise concerns with the position adopted in the draft tax determination insofar as it purports to draw a strict distinction between rights arising under a deceased’s will and rights arising under a testamentary trust established by that will.
If the concerns we have identified in relation to the draft tax determination are not addressed, we are concerned that the result is likely to be the exclusion of commonplace and orthodox testamentary arrangements from the operation of subsection 118‑195(1) of the ITAA, producing outcomes that turn on drafting form rather than substantive testamentary intention. Estates in which a dwelling continues to be occupied consistently as provided for in the deceased’s will may nonetheless be denied access to the main residence exemption, exposing beneficiaries to unexpected capital gains tax (CGT) liabilities and increasing pressure to dispose of dwellings earlier than intended. This would introduce uncertainty into estate planning and administration, encourage defensive drafting to guard against technical risk, and generate avoidable disputes at the margins of what constitutes a qualifying right.
The submissions recommends that the Commissioner reconsider the distinction drawn between deceased estates and testamentary trusts, and recognise that rights to occupy arising under a testamentary trust are, properly characterised, rights conferred under the deceased’s will for the purposes of subsection 118‑195(1) of the ITAA, and to revise the draft tax determination accordingly.
The Law Council has welcomed further engagement on any revisions.
Last Updated on 17/03/2026
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