Main Residence Safe Harbour When Selling An Inherited Property

The ATO has finalised its practical compliance guideline dealing with situations where inherited dwellings are sold more than two years after the date of death of a deceased individual.

In some cases, a deceased estate or beneficiary can access full exemption on sale of an inherited dwelling if it is sold within 2 years of the date of death and either:

  • It was acquired pre-CGT by the deceased individual; or
  • The dwelling was the main residence of the deceased individual just before they died and the dwelling was not used to produce income at that time.

If the property is sold more than 2 years after the date of death then it is more difficult to apply a full exemption, although this depends on whether certain individuals have used the property as their main residence after the date of death. The rules give the Commissioner the power to extend the 2 year period in some cases, but this is subject to the Commissioner’s discretion.

Normally it would be necessary to submit a private ruling to the ATO seeking the exercise of this discretion. However, new regulation states that an automatic 18 month extension is provided without having to ask the Commissioner if all of the following conditions are satisfied:

  • During the first two years after the deceased’s death, more than 12 months was spent addressing one or more of the circumstances described in paragraph 12 of the PCG (e.g., determining ownership of the dwelling, dealing with challenges to the will etc);
  • The dwelling was listed for sale as soon as practically possible after those circumstances were resolved (and the sale was actively managed to completion);
  • The sale completed (settled) within 12 months of the dwelling being listed for sale;
  • If any of the circumstances described in paragraph 13 of the PCG were applicable (eg, waiting for the market to pick up, refurbishing the property etc), they were immaterial to the delay in disposing of the interest; and
  • The longer period for which you would otherwise need the discretion to be exercised is no more than 18 months.

For more information and advice tailored to you, contact our Estate Planning team on 03 8393 1000.

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