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If you acquire a dwelling the deceased had owned, there are special rules for calculating your cost base. These rules apply in calculating any capital gain or capital loss when a CGT event happens in relation to the dwelling.
The first element of the cost base or reduced cost base of a dwelling-its acquisition cost-is its market value at the date of death if either:
- the dwelling was acquired by the deceased before 20 September 1985 or
- the dwelling passes to you after 20 August 1996 and it was the main residence of the deceased immediately before their death and was not being used to produce income at that date.
In any other case, the acquisition cost is the deceased's cost base or reduced cost base on the day they died.
Continuing main residence status
Aldo bought a house in March 1995 and lived in it. He moved into a nursing home in December 1996 and left the house vacant. He chose to treat the house as his main residence after he ceased living in it under the continuing main residence status after dwelling ceases to be your main residence rule.
Aldo died in February 2002 and the house passed to his beneficiary, Con who uses the house as a rental property.
As the house was Aldo's main residence immediately before his death and was not being used to produce income at that time, Con, can obtain a full exemption for the period Aldo owned it.
If Con rented out the house and sold it more than 2 years after Aldo's death, the capital gain for the period from the date of Aldo's death until Con sold it is taxable.
If Con had sold the house within 2 years of Aldo's death, he could have ignored the main residence days and total days between Aldo's death and him selling it-which would have given him exemption for this period.
If Aldo had rented out the house after he ceased living in it and had chosen to treat it as his main residence under the continuing main residence status after dwelling ceases to be your main residence rule, the house would be considered to be his main residence until his death because he rented it out for less than 6 years.
However, even if this choice had been made, Con would only obtain a part exemption for the period Aldo owned the house because it was being used to produce income just before Aldo died. Con would obtain the exemption for the period Aldo did not use the house to produce income.
Note that even though 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. 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
- for a maximum of 6 years after they ceased living in it-if it was used to produce income after they ceased living in it.
If you are a beneficiary, the cost base or reduced cost base also includes amounts that the trustee of the deceased's estate would have been able to include in the cost base or reduced cost base.
Last modified: 06 Oct 2009QC 27417