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  • Extensions to the two-year ownership period

    You can be exempted from capital gains tax (CGT) on disposal of an inherited dwelling if you dispose of it within two years of the person's death and either:

    • The deceased acquired the property before September 1985.
    • At death the property was the main residence of the deceased and was not being rented.

    If you dispose of the property outside of the two-year period, the exemption can still apply if the Commissioner of Taxation grants an extension of the two-year period.

    On this page:

    When an exemption applies

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    The Commissioner has set out circumstances where the taxpayer will be granted an extension to the two-year limit without the taxpayer making a request to the Commissioner.

    If you met the other requirements set out above and don't dispose of the dwelling within two years, then you may be able to be exempt from CGT as if the Commissioner had granted the two year extension. This can apply where you satisfy all of the exceptional circumstances that are outside your control.

    If these exceptional circumstances apply to you then you don't need to apply to us for an extension to be granted under the two-year exemption rule. The extension will automatically be granted.

    You also do not need to apply to the us for an extension if either:

    • The main residence exemption applies because an 'eligible person' uses the property as their main residence from the date of death until the property was sold.
    • There is no capital gains tax at all or there is a capital loss.

    See also:

    Exceptional circumstances

    Exceptional circumstances outside your control will occur where you satisfy all of the following conditions:

    • during the first two years after the deceased's death, more than 12 months was spent addressing one or more of the four 'circumstances that took more than 12 months to resolve'
    • the dwelling was listed for sale as soon as practically possible after none of those circumstances were any longer an impediment (and the sale was actively managed to completion)
    • the sale completed (settled) within 12 months of the dwelling being listed for sale
    • if any 'circumstances that can't be material to delays in disposal' were applicable, they did not materially contribute to the delay in your sale
    • the longer period for which you would otherwise need the discretion to be exercised is no more than 18 months.

    Circumstances that took more than 12 months to resolve

    One or more of the following circumstances must have taken more than 12 months to address:

    • the ownership of the dwelling or the will, is challenged
    • a life or other equitable interest given in the will delays the disposal of the dwelling
    • the complexity of the deceased estate delays the completion of administration of the estate
    • settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of your control.

    Circumstances that can't be material to delays in disposal

    To qualify for the extension, none of the following circumstances can have been material to the delay in disposing of your interest:

    • waiting for the property market to pick up before selling the dwelling
    • delay due to refurbishment of the house to improve the sale price
    • inconvenience on the part of the trustee or beneficiary to organise the sale of the house
    • unexplained periods of inactivity by the executor in attending to the administration of the estate.

    No Capital gains tax or Capital Loss

    Where the deceased bought the property before September 1985 or the property was the deceased’s main residence before date of death and was not being rented out, then your CGT cost base will be the market value at date of death.

    There will be no CGT where your CGT cost base is greater than the final sale price.

    Example – Capital loss

    Mary died in February 2018 and her property was valued at $500,000. The property was:

    • her main residence at her death
    • not being rented out after her death.

    You sold the property June 2020 for $450,000 because the property market in the area dropped by 10% over this period.

    $500,000 Market value at date of death (CGT cost base) − $450,000 Sale price = $ 50,000 Loss on the market value

    As there was a capital loss, no CGT would arise. In this scenario there would be no need to request an exemption from the Commissioner.

    End of example

    See also:

    When to apply to the Commissioner

    Where a property was not disposed of within the two years after death, you may need to apply to the Commissioner to allow the main residence exemption. Apply to the Commissioner where:

    • you're uncertain of whether you meet the special requirements or the alternative requirements in order to obtain the exemption
    • the above conditions don’t apply to you and you consider that the two-year extension should be allowed by the Commissioner, you can write to us to request an exemption.

    Granting of an extension for not disposing of the property within two years generally depends on relatively exceptional circumstances outside of your control. It is unlikely that an extension would be granted if you are waiting for a better price or any of the four ‘circumstances that can't be material to delays in disposal‘ exist.

    In some situations, before applying to us for a full exemption by extension of the two-year rule, consider how much of a capital gain will arise in any event owing to the application of the partial exemption rule.

    Next step:

    Calculating the partial CGT main residence exemption

    If you don't qualify for a full exemption from capital gains tax (CGT), you may be entitled to a partial exemption. You don't need to apply for a partial exemption. You calculate your capital gain or loss as follows:

    Capital gain or loss amount × Non-main residence days ÷ Total days

    Note: If the property is a pre-CGT asset there is a different calculation for the partial main residence.

    Example – work out the partial exemption of an inherited property

    Jane acquired the property 29 May 2003 for $120,000 and resided in it until her death on 25 January 2017.

    Her beneficiary, Terry rented the property out for three years after her death before selling the property for $700,000 on 25 March 2020.

    As the property was Jane’s main residence at her date of death the first element of the cost base for Terry is its market value on Jane's death being $650,000 as at 25 January 2017.

    The gain on the sale of the property is worked out as follows:

    $700,000 – sale price on 20 March 2020

    $650,000 – market value on 25 January 2017

    $50,000 – capital gain

    The partial main residence rules apply as the sale was not within two years of the date of death. The property was purchased in 2000 therefore it is not a pre-CGT asset.

    The part main residence component is worked out by dividing the non-main residence days by the total ownership days, which includes the period it was owned by the deceased.

    The non-main residence days will be the number of days from date of death to the date of sale – as it was rented for most of that period and it was not the main residence of anyone with the right to occupy the property under the will. The total ownership days will be number of days from acquisition by Jane in 2000 until the date of sale.  

    1150 days – Non-main residence days (3 years, 2 months)

    6870 days – Total Ownership days (5,720 days (main residence) + 1150 days (non-main residence)

    The ‘assessable’ portion of the capital gain is $8,369 calculated as follows:

    1150 ÷ 6870 × $50,000 (capital gain) = $8,369.

    As the property was owned by Jane and Terry for more than 12 months the 50% discount method is available.

    If Terry has no carry forward capital losses or any other capital gains then Terry’s assessable capital gain is $4,194.

    End of example

    See also:

      Last modified: 31 May 2018QC 55205