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 (see Major capital improvements to a dwelling acquired before 20 September 1985).
Deceased died on or after 20 September 1985
(a)The deceased acquired the dwelling before 20 September 1985 (it does not matter whether the dwelling was the main residence of the deceased person).
You may have an ownership interest in a dwelling that passed to you as a beneficiary in a deceased estate or you may have owned it as trustee of a deceased estate. In either case, any capital gain or capital loss you make from a CGT event that happens in relation to the dwelling is disregarded if either of the following applies:
- You disposed of your ownership interest within two years of the person's death. This applies whether or not you used the dwelling as your main residence or to produce income during the two-year period.
- From the deceased's death until you disposed of your ownership interest, the dwelling was not used to produce income and was the main residence of one or more of:
The dwelling can be the main residence of one of the above people (even though they may have ceased living in it) if they choose to treat it as their main residence under the 'continuing main residence status after dwelling ceases to be your main residence' rule.
The Tax Office has no discretion to extend the two-year period.
(b)The deceased acquired the dwelling on or after 20 September 1985.
Any capital gain or capital loss you make when a CGT event happens in relation to the dwelling or your ownership interest in the dwelling will be disregarded if:
- Condition 2 in (a) above is met and the dwelling passed to you as beneficiary or trustee on or before 20 August 1996. For this to apply, the deceased must have used the dwelling as their main residence from the date they acquired it until their death and they must not have used it to produce income.
- One of the conditions in (a) above is met and the dwelling passed to you as beneficiary or trustee after 20 August 1996, and just before the date 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 the dwelling as the deceased's 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, or
- if it was used to produce income, for a maximum of six years after the deceased stopped living in it.
Example – Full exemption
Rodrigo was the sole occupant of a home he bought in April 1990. He did not live in or own another home.
He died in January 2003 and left the house to his son, Petro. Petro rented out the house and then disposed of it 15 months after his father died.
Petro is entitled to a full exemption from CGT as he acquired the house after 20 August 1996 and disposed of it within two years of his father's death.End of example
If you do not qualify for a full exemption from CGT for the home you may be entitled to a part exemption.
You calculate your capital gain or capital loss as follows:
Capital gain or capital loss amount × non-main residence days ÷ total days
Non-main residence days
'Non-main residence days' is the number of days that the dwelling was not the main residence.
(a) If the deceased acquired the dwelling before 20 September 1985, non-main residence days is the number of days in the period from their death until settlement of your contract for sale of the dwelling when it was not used to produce income and was not the main residence of one of the following:
- a person who was the spouse of the deceased (except a spouse who was permanently separated from the deceased)
- an individual who had a right to occupy the dwelling under the deceased's will, or
- you, as a beneficiary, if you disposed of the dwelling as a beneficiary.
(b) If the deceased acquired the dwelling on or after 20 September 1985, non-main residence days is the number of days calculated under (a) plus the number of days in the deceased's period of ownership when the dwelling was not their main residence.
(a) If the deceased acquired their ownership interest before 20 September 1985, 'total days' is the number of days from their death until you disposed of your ownership interest.
(b) If the deceased acquired the ownership interest on or after 20 September 1985, total days is the number of days in the period from when the deceased acquired the dwelling until you disposed of your ownership interest.
Example – Part exemption
Vicki bought a house under a contract that was settled on 12 February 1995 and she used it solely as a rental property. When she died on 17 November 1998, the house became the main residence of her beneficiary, Lesley. Lesley sold the property under a contract that was settled on 27 November 2003.
As Vicki had never used the property as her main residence, Lesley cannot claim a full exemption from CGT. However, as Lesley used the house as her main residence, she is entitled to a part exemption from CGT.
Vicki owned the house for 1,375 days and Lesley then lived in the house for 1,837 days, a total of 3,212 days. Assuming Lesley made a capital gain of $10,000, the taxable portion is:
$10,000 × (1,375 ÷ 3,212) = $4,281
As Lesley is taken to have acquired the property before 11.45am (by legal time in the ACT) on 21 September 1999 and entered into the contract to sell it after that time, and held the property for at least 12 months, she can use either the indexation or the discount method to calculate her capital gain.End of example
If you dispose of your ownership interest in a dwelling within two years of the person's death, you can ignore the main residence days and total days in the period from the person's death until you dispose of the dwelling if this lessens your tax liability.
Also any non-main residence days before the deceased's death are ignored in calculating the capital gain or capital loss if:
- you acquired the dwelling after 20 August 1996
- the dwelling was the deceased's main residence just before their death, and
the dwelling was not being used to produce income at the time of their death.