When “Right to Occupy” Doesn’t Mean What You Think. Why Draft TD 2026/D1 matters for estate planning advisers
The ATO’s draft determination TD 2026/D1, handed down on 28 January 2026, has quietly but decisively narrowed the circumstances in which a deceased estate can access the CGT main residence exemption where someone continues to live in the home after death
For financial advisers, accountants, and estate planners, the message is clear: intent is
not enough; drafting is everything.
Subsection 118-195(1) of the ITAA 1997 disregards a capital gain or capital loss made from a CGT event that happens in relation to a dwelling (or an “ownership interest” in a dwelling) that passes to a beneficiary of a deceased estate.
Many wills grant a right to occupy a dwelling, but the question that arises is whether that right to occupy creates an "ownership interest" that invokes the CGT main residence exemption
What’s changed (or clarified)?
The draft determination confirms that a “right to occupy” a dwelling will only satisfy section 118-195 if that right is:
Expressly granted in the deceased’s will
Granted to a specifically identified individual
Effective without any later or separate agreement, discretion, or arrangement
In practical terms, this means that common estate-planning practices may no longer do what advisers assume they do.
What doesn’t qualify?
The ATO is explicit that the CGT exemption will not apply where the right to occupy arises from:
An agreement between beneficiaries after death
The executor or trustee exercising a broad discretion
A right granted under a testamentary trust, even if that trust is annexed to the will. This includes individuals specifically named in a testamentary trust as having a right to occupy a dwelling, or the trust deed provides the trustee with a discretion to grant a right of occupation
This is particularly significant for estates where the family home is retained in a testamentary trust structure, a strategy often adopted for asset protection or tax flexibility.
The estate-planning risk
Where a will assumes flexibility rather than spelling out occupation rights, the result may be:
Loss of the full CGT main residence exemption
Only a partial exemption applying
Unexpected tax outcomes for beneficiaries years after death
From an estate-planning perspective, this turns what looks like an administrative decision into a material tax risk.
What advisers should be doing now
Financial advisers and accountants should be asking sharper questions, including:
Does the will expressly grant a right to occupy the home?
Is the occupier named, or merely within a class?
Is the right time-limited, and if so, what happens after expiry?
Is the home intended to sit in a testamentary trust, and has the CGT position been stress-tested?
Most importantly, advisers should be working closely with estate-planning lawyers, not assuming that discretionary or “family-friendly” drafting will preserve tax outcomes.
The bigger takeaway
TD 2026/D1 reinforces a broader theme we see again and again at Inherit Australia:
Tax outcomes are driven by legal form, not family intention.
Estate planning is no longer just about who gets what; it’s about how precisely the will says it happens.
If you’re advising clients with significant real property, blended families, or long-term occupancy intentions, now is the time to revisit those wills before the ATO does.
