Chartered Accountants Australia and New Zealand (CA ANZ) has lodged a submission on Draft Taxation Determination TD 2026/D1 Income Tax: deceased estates – meaning of ‘right to occupy the dwelling under the deceased’s will’ in item 2(b) of column 3 of the table in subsection 118-195(1) of the Income Tax Assessment Act 1997 (Draft TD).

The Draft TD explains when a beneficiary or trustee of a deceased estate can use the CGT exemption for the disposal of their ownership interest in the deceased’s main residence, based on the individual's right to occupy the residence under the will.

CA ANZ’s submission raises several concerns about the Draft TD:

• The Draft TD draws a distinction between where the right to occupy the dwelling is drafted under the deceased’s will. If the right to occupy is drafted under the terms of the testamentary trust then the ATO is of the view the right to occupy the dwelling does not arise under the deceased’s will. The ATO is of the view the will and the terms of the testamentary trust are separate legal instruments. CA ANZ disagrees with this view as a testamentary trust is established by a will, has no independent existence outside the will and operates solely to carry out the deceased’s intentions. 
• The Draft TD states that a right to occupy the dwelling must be granted to an individual specifically named in the will. Item 2(b) of section 118-195(1) does not require the individual to be named. It should be sufficient that the individual is identifiable by class or description in the will.
• The date of effect for the final TD is before and after the issue of the TD. CA ANZ submits that the ATO view under the TD should only apply prospectively. If the views were applied to prior years, many deceased estates which have already been completely administered may have to amend their assessments which would further compound the grief suffered by the surviving family members.

If the final determination does not change from the Draft TD, estate lawyers will have to pay close attention to the drafting of testamentary trust wills where an individual proposes to grant to a person a right to occupy their house after their death.