The draft draws a hard line between the will and everything built around it, and it would apply to years before it issues.
Draft TD 2026/D1 consolidates and replaces the withdrawn ATO IDs 2003/109, 2004/882 and 2004/734, and it tightens the narrative around the CGT main residence exemption for deceased estates (s 118-195(1) item 2(b)).
What is unchanged
Side agreements and deeds of arrangement that let someone live in the dwelling are not a “right to occupy under the will” (Example 1). A right to occupy for a limited period only shelters that period; stay longer and you are into partial exemption territory (Example 3). Family provision orders can still qualify because they operate as a codicil to the will (Example 4).
Where the draft turns up the heat
“Under the will” now means the will itself must expressly grant the right to a specifically named or identified person. A trustee or executor discretion to grant occupation later is expressly said not to qualify (Example 2).
Testamentary trust warning: the ATO draws a hard line between the will and a testamentary trust deed, even one annexed to it. Rights arising under the trust deed are not “under the will” for item 2(b).
And PS LA 2003/12 is not the rescue rope. The ATO says it is an administrative practice for Division 128 only, not a basis to expand s 118-195.
The reality check
Do not take the ATO entirely at face value: the legislation does not literally require the occupier to be named in the will. ATO ID 2003/109W even floated “in pursuance of / under the authority of the will” language. The draft’s hard no to discretionary clauses arguably narrows that, and it is likely to be a key battleground in submissions.
Also: the ATO proposes the final TD apply to years of income both before and after issue, so this is not just forward-looking.
If you advise on wills, estate administration or property CGT, review precedent clauses now. An occupation right intended to carry the exemption should be granted by the will, expressly, to an identified person.
General information only. This note was accurate when written. The law may have changed since and the note is not updated. It is not legal or tax advice, does not take account of your circumstances and must not be relied upon as a substitute for advice on your own matter. If the issue is live for you or your client, email arda@nortonquaytaxlaw.com.au for advice on the current position.