Guide to property

Inheriting a dwelling

If you inherit a dwelling, there are usually no capital gains tax implications at the time you inherit it. Capital gains tax may apply when you subsequently sell or otherwise dispose of the dwelling. This section has information about:

Disregarding capital gain or loss on death

Capital gains tax does not apply when a property is inherited if, when the former owner dies, the property passes:

to the deceased's legal personal representative - such as the executor of the estate
to a beneficiary - that is, a person entitled to the deceased's property, such as next of kin or a person named in the deceased's will
from the deceased's legal personal representative to a beneficiary.

This exception doesn't apply if the property passes from the deceased to a tax-advantaged entity (such as a charity) or foreign resident.

For more information, refer to Deceased estate and capital gains tax.

Selling a home you inherited

If you inherit a dwelling and subsequently sell or otherwise dispose of it, capital gains tax may apply to the subsequent disposal. It depends on a number of things, such as when the former owner died, when they (and you) acquired the dwelling, and what they (and you) did with it. Check the scenario that applies to your circumstances:

the deceased died before 20 September 1985
the deceased died on or after 20 September 1985 and

These rules do not apply to:

land or a structure you sell separately from the dwelling - they are subject to capital gains tax

a share of a property you acquire on the death of a joint tenant - different rules apply in this situation.

Deceased died before 20 September 1985

As you acquired the dwelling before 20 September 1985, any capital gain you make is exempt. However, major capital improvements you make to the dwelling on or after 20 September 1985 may be taxable.

Deceased died on or after 20 September 1985 and acquired the dwelling before 20 September 1985

In this situation, the dwelling need not have been the main residence (home) of the deceased.

You disregard a capital gain or capital loss you make when you dispose of the dwelling if either of the following conditions applies:

Condition 1 (disposal within two years)
You disposed of the dwelling within two years of the person's death. This exemption applies whether or not you used the dwelling as your main residence or to produce income during the two-year period.
Condition 2 (main residence)
From the deceased's death until you disposed of the dwelling, it was not used to produce income and was the main residence of one or more of:

a person who was the spouse of the deceased immediately before the deceased's death (but not a spouse who was permanently separated from the deceased)
an individual who had a right to occupy the home under the deceased's will
you, as a beneficiary, if you disposed of the dwelling as a beneficiary.

The dwelling can be the main residence of one of the above people (even though they may have stopped living in it) if they choose to treat it as their main residence under the continuing main residence rule.

A dwelling is treated as your main residence from when you acquired it until it actually became your main residence, provided you moved into the dwelling when it was first practicable to do so after acquiring it.

Deceased acquired the dwelling on or after 20 September 1985

If the dwelling passed to you on or before 20 August 1996, you disregard any capital gain or capital loss when you dispose of it if:

condition 2 (main residence) above is met, and
the deceased used the dwelling as their main residence from the date they acquired it until their death, and did not use it to produce income.

If the dwelling passed to you after 20 August 1996, you disregard any capital gain or capital loss when you dispose of it if:

either condition 1 (disposal within two years) or condition 2 (main residence) above is met, and
just before the deceased died it was their main residence and was not being used to produce income.

A dwelling can still be regarded as the deceased's main residence, even though they ceased living in it, if they or their trustee chose to treat it as the deceased's main residence under the continuing main residence rule.

Even if not all of the above conditions apply to you, your circumstances may still allow for a partial exemption. For more information, refer to Inheriting a dwelling.

Continuing main residence status

If the deceased was not living in the home at the date of their death, they or their trustee may have chosen to treat it as their main residence. This may happen if, for example, the person moved to a nursing home. You may need to contact the trustee or the deceased's tax adviser to find out whether this choice was made. If it was, the dwelling can still be regarded as the deceased's main residence:

for an indefinite period - if the dwelling was not used to produce income after the deceased stopped living in it
for a maximum of six years after they ceased living in it - if it was used to produce income after they ceased living in it.

For more information, refer to Treating a dwelling as your main residence after you move out.

Death during construction

If an individual entered into a contract to construct, repair or renovate a home on land they already owned, and they die before certain conditions are met, the trustee may choose that the home and land be treated as the deceased's main residence for up to four years before the home became (or was to become) their main residence.

This choice can be made if the deceased dies:

before the home is finished
before it was practicable for the home to be their main residence, or
before they had lived in the home for three months.

If the trustee makes this choice, no other dwelling can be treated as the deceased's main residence during that time.

Joint ownership: when one owner dies

If two or more people acquire a property asset together, it can be either as tenants in common or as joint tenants.

Tenants in common: If a tenant in common dies, their interest in the property is an asset of their deceased estate. This means it can be transferred only to a beneficiary of the estate or be sold (or otherwise dealt with) by the legal personal representative of the estate.
Joint tenants: If one of the joint tenants dies, their interest in the property passes to the surviving joint tenant(s). It is not an asset of the deceased estate.

For capital gains tax purposes, if you are a joint tenant you are treated as if you are a tenant in common owning equal shares in the asset.

However, if you are a joint tenant and another joint tenant dies, on that date their interest in the asset is taken to pass in equal shares to you and any other surviving joint tenants, as if their interest is an asset of their deceased estate and you are beneficiaries.

This means if the dwelling was the deceased's main residence, you may be entitled to the main residence exemption for the interest you acquired from them.

For more information, refer to Joint tenancy.

Property - home

Last Modified: Wednesday, 1 August 2012