CGT Implications of Inheriting Property

CGT Implications of Inheriting Property

As the beneficiary of a deceased estate, when you inherit a property, depending on your circumstances, you may be eligible for a Capital Gains Tax (CGT) exemption.

If you have inherited the property before 20th September 1985, the asset will be considered a Pre-CGT Asset, and unless there have been major capital improvements to the property on or after 20th September 1985, any capital gains you make on its disposal will be exempt from CGT.

If the deceased acquired the property before 20th September 1985 and passed away on or after the date, a GGT exemption may apply if either of the following conditions is met:

  • The asset is disposed within two years of the deceased’s death (with some exemptions), or;
  • Post deceased’s death until the sale of the property, the dwelling is not used for income production and is used as the principal place of residence by the beneficiary.

For example, Jane purchased a house before 20th September 1985. She passed away in March 1991 and the house was passed on to her son who was also the beneficiary to her estate, Peter. Due to circumstances outside of Peter’s control, the sale of the house was delayed. The house was sold in May 1993 (2 years and 2 months after Jane’s death). 

As the house was disposed of as soon as practicably possible, at the ATO’s discretion, an extension to the two-year window for disposal of the house may be granted.

Where a property is acquired on or after 20th September 1985, any capital gains or losses will be disregarded if either of the following applies:

  • The property was passed to the beneficiary on or before 20th August 1996 and the property was used as the deceased person’s main residence until their death, or;
  • The property was passed on to the beneficiary after 20 August 1996 and was used as the main residence of the deceased until their death and disposed of within two years. The property must also not be used to produce income just before the deceased died.

For example, if Jane were using the house as her main residence up until her death, and after inheriting the house, Peter rented out the house and disposed it within the two-year window, Peter would be entitled to a full exemption from CGT. Here too, if Peter were unable to sell the house within the two-year window due to circumstances outside of his control, he may be able to seek an extension of time from the ATO.

Inheritance of property is a complex matter and your individual circumstances need to be considered. If you are a beneficiary of a deceased estate and need further assistance in understanding the tax implications of inheriting property, please feel welcome to get in touch with us.

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