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If you do not qualify for a full exemption from capital gains tax for the home you may be entitled to a partial exemption.
You calculate your capital gain or loss as follows:
Capital gain or loss amount
Non-main residence days
Non-main residence days - the days that the dwelling was not the main residence - is the sum of:
- if the deceased acquired the dwelling on or after 20 September 1985, the number of days in the deceased's period of ownership when the dwelling was not their main residence and
- the number of days in the period from the death until you dispose of the dwelling that it was not the main residence of
- the spouse of the deceased - except a spouse who was permanently separated
- an individual who had a right to occupy the dwelling under the deceased's will or
- you as a beneficiary.
If the deceased acquired the ownership interest before 20 September 1985, total days is the number of days from the death until your ownership interest ends.
If the deceased acquired the ownership interest on or after 20 September 1985, total days is the number of days in the period from the acquisition of the dwelling by the deceased until your ownership interest ends.
If you dispose of the home on or before 20 August 1996, a partial exemption is not available if the dwelling was never the main residence of the deceased.
If the property passes to you after 20 August 1996 and the dwelling was the deceased's main residence just before death and was not income producing at that time, any days before their death that it was not their main residence are ignored for the purposes of calculating a capital gain.
If your ownership interest in the dwelling ends within 2 years of the person dying, you can ignore any period it was not your main residence and ignore the total days in the period from death until you dispose of the dwelling if this lessens your tax liability. If the disposal was on or before 20 August 1996, you apply this rule only if you dispose of the dwelling within 12 months of the person dying.
Enid bought a house on 12 February 1994 that she used solely as a rental property. When she died on 17 November 1997, the house became the main residence of her beneficiary, Pamela. Pamela disposed of the property on 27 November 1999.
As Enid had never used the property as her main residence, Pamela cannot claim a full exemption from capital gains tax. However, as Pamela used the house as her main residence and disposed of it after 20 August 1996, she is entitled to a partial exemption from capital gains tax. Enid owned the house for 1375 days and Pamela then lived in the house for 740 days, a total of 2115 days. Assuming that there was a gain of $10,000 on disposal then Pamela would only include a gain of $6,501 ($10,000 x 1,375/2,115).
As Pamela sold the property after 11.45 am on 21 September 1999 and held the property for at least 12 months, the capital gain (after applying capital losses) may be reduced by the 50 per cent CGT discount.
Aldo bought a house in March 1995. He moved into a nursing home in December 1996 and rented out his house. He elected that it continue to be treated as his main residence. Aldo died in February 2000 and the house passed to his beneficiary, Frank, who uses the house as a rental property.
Aldo rented out the house for less than 6 years. As the house was his main residence immediately before his death, Frank is considered to have acquired the house at the time of Aldo's death for a consideration equal to its market value.
If Frank continues to rent the house and disposes of it more than 2 years after Aldo's death, the capital gain for the period from the date of Aldo's death is subject to tax.
Last modified: 18 Sep 2009QC 18323