Navigating the New ATO Draft Ruling on Rights to Occupy in Wills and Estates

The ATO has released a draft ruling (TD 2026/D1) that creates a real and immediate tax risk for many wills and estate plans that include a “right to occupy” or “right to reside” in the family home.

In short, the ATO’s draft view is that many of these rights will not qualify for the main residence capital gains tax (CGT) exemption when the property is eventually sold.

This can result in unexpected and significant CGT for estates and beneficiaries.

Why this matters

Many wills allow a surviving spouse or family member to continue living in the home, with the assumption that there will be no CGT when the property is later sold.

Under the ATO’s draft view, that assumption may no longer be safe or correct.

If the right to occupy does not recognise an ownership-type interest including where the right to occupy is granted through a testamentary trust, the estate or beneficiaries may now face CGT that was never anticipated or planned for.

What has changed

The ATO has adopted a much narrower interpretation of qualifying rights to occupy.

The legal form and drafting of the will is now critical.

Wills that were previously considered tax effective in creating a right to occupy may now carry significant tax risk.

Why action is important

The family home is often the most valuable asset in an estate. If the will is not structured correctly:

1. CGT may arise on sale.

2. Inheritances may be materially reduced.

3. Disputes can arise during estate administration.

What you should consider

Now is the time to act to review wills and estate plans where:

• Someone is intended to live in the family home after death; or

• CGT outcomes were assumed but not specifically addressed.

Our recommendation

Given the ATO’s draft position, we recommend that wills and estate plans be reviewed as a priority.

At PV Legal, we are specialist and have strong experience in both wills and estates and taxation law, allowing us to:

• Identify CGT risks arising from rights to occupy.

• Assess whether wills and estate plans are exposed to unintended tax outcomes.

• Update wills and estate plans to better manage and mitigate the CGT risk.

If you or your clients have any concerns, we recommend arranging a wills and estate plan review with PV Legal.

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