In my previous article I mentioned that if you inherit a dwelling and later sell or otherwise dispose of it, you may be exempt from capital gains tax (CGT), depending on:
- When the deceased acquired the property;
- When they died;
- Whether the property has been used to produce income (such as rent).
If you’re not exempt, or only partly exempt, you need to know the cost base of the dwelling to work out your capital gain. The cost base may be the value of the dwelling when the deceased acquired it or the value when they died, depending on the circumstances above.
Pre Sept 1985 death : If the deceased died before 20 September 1985, the dwelling is fully exempt unless you made a major capital improvement to the dwelling on or after 20 September 1985 and used it to produce assessable income.
Post Sept 1985 death on pre Sept property : In this situation, the dwelling need not have been the main residence (home) of the deceased person. CGT does not apply to the dwelling if either of the following conditions is met:
Condition 1 – disposal (settlement) of the property within two years: This applies regardless of what you do with the property during that 2 year period.
Condition 2 – if the property is to be used as your main residence until you sell it then you can hold it for potentially CGT free for more than 2 years.
Post Sept 1985 purchases and death : this can be CGT exempt if either of the above two conditions apply though there are restrictions around how the deceased used the property prior to death.
Extensions to the two-year ownership period
If it is not possible to sell (and settle) the property within the 2 year period we can apply to for an extension if the delay is due to circumstances outside your control, such as:
- The ownership of a dwelling or a will is challenged;
- The complexity of a deceased estate delays the completion of administration of the estate;
- A trustee or beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the two-year period;
- Settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary’s or trustee’s control.
In part three of this series I will discuss circumstances where the property maybe be partially exempt from capital gains tax.
If you have any questions or require assistance with a deceased estate please contact Paris Financial on 03 8393 1000.
Steve Wildes, Partner, Paris Financial
Property Inheritance Article Series