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  • CGT exemptions for inherited dwellings

    If you inherit a dwelling and later sell or otherwise dispose of it, you may be fully or partly exempt from capital gains tax (CGT).

    Use the flowchart below to work out if your inherited dwelling is exempt.

    Alternatively you can check the scenario that applies to your situation:

    Work out if your inherited dwelling is exempt

    To determine if your inherited dwelling qualifies for the main residence exemption, work through the following flowchart questions. Note that:

    1. Did the deceased person acquire the dwelling before 20 September 1985?

    2. Did settlement of your contract to sell the dwelling happen within two years of the person dying (or did we allow you more time)?

    3. Was the dwelling the deceased person’s main residence just before they died?

    • Yes: Read question 4.
    • No: Dwelling is not fully exempt but you may qualify for a part exemption.

    4. Just before they died, was the dwelling being used to produce income?

    • Yes: Dwelling is not fully exempt but you may qualify for a part exemption.
    • No: Read question 2.

    5. From the deceased person’s death until settlement of your contract to sell the inherited dwelling, was it your main residence (or the main residence of an individual who had a right to occupy it under the will or the spouse of the deceased person)?

    • Yes: Read question 6
    • No: Dwelling is not fully exempt but you may qualify for a part exemption.

    6. From the deceased person’s death until settlement of your contract to sell the inherited dwelling, was any part of the dwelling used to produce income?

    • Yes: Dwelling is not fully exempt but you may qualify for a part exemption.
    • No: Dwelling is fully exempt.

    Deceased died before 20 September 1985

    If you inherited the dwelling before 20 September 1985, any capital gain you make when you dispose of it is exempt.

    Any major capital improvements you make to the dwelling on or after 20 September 1985 may be taxable.

    See also:

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

    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 within two years):
      You dispose of your ownership interest within two years of the person's death – that is, if the dwelling is sold under a contract and settlement occurs within two years. This exemption applies whether or not you use the dwelling as your main residence or to produce income during the two-year period. (You can apply to extend the two-year period.)
    • Condition 2 (main residence while you own it)
      From the deceased's death until you dispose of your ownership interest, the dwelling is not used to produce income and is 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 dwelling under the deceased's will
      • you, as a beneficiary, if you dispose 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 continue treating it as their main residence – see Treating a dwelling as your main residence after you move out.

    A dwelling is considered to be your main residence from the time you acquire your ownership interest in it if you move in as soon as practicable after that time.

    Example: moving in as soon as practicable

    Peter bought a house prior to 20 September 1985. He died in February 1992 and the house passed to his beneficiary, Bob.

    Under Peter’s will, Patti had a right to occupy the house. However, Patti couldn't move in until probate and administration of the estate was granted. During this period the house was vacant. Probate and administration of the estate was granted in September 1992 and Patti moved in immediately.

    Patti used the house as her main residence until Bob disposed of it in March 2018. Patti did not have an ownership interest in any other dwelling from the date of Peter’s death.

    As Patti moved into the house when it was first practicable to do so, it is treated as Patti’s main residence from the time of Peter’s death until Bob sold it.

    Bob is entitled to a full main residence exemption.

    End of example

    Deceased acquired the dwelling on or after 20 September 1985

    You disregard any capital gain or loss you make when a CGT event happens to the dwelling (such as selling it) if either of the following applies:

    • the dwelling passed to you on or before 20 August 1996, and:  
      • Condition 2 (main residence while you own it) 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
       
    • the dwelling passed to you after 20 August 1996, and:  
      • Condition 1 (disposal within two years) or Condition 2 (main residence while you own it) above is met, and
      • just before the deceased died it was their main residence and was not being used to produce income.
       

    A dwelling passes to you when you became its owner or, if you became absolutely entitled to it before or without becoming its owner, at that time. (The trustee or executor should be able to tell you whether or not you became absolutely entitled to it and, if so, when).

    Example: Full exemption

    Rodrigo was the sole occupant of a flat he bought in April 1990. He did not live in or own another dwelling.

    Rodrigo died in January 2017 and left the flat to his son, Petro. Petro rented out the flat and then disposed of it 15 months after his father died.

    Petro is entitled to a full exemption from CGT as he acquired the flat after 20 August 1996 and disposed of it within two years of his father's death.

    End of example

    Next steps:

    See also:

    Last modified: 29 Jun 2018QC 52247