Inheriting a dwelling
If you inherit a deceased person's dwelling, you may be exempt or partially exempt when a capital gains tax (CGT) event happens to it (for example, you sell it). The same exemptions apply if a CGT event happens to a deceased estate of which you are the trustee.
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The degree to which CGT applies depends on:
- when the deceased person acquired the property
- when they died
- whether the property has been used for income-producing purposes.
These rules do not apply to land or a structure you sell separately from the dwelling – they are subject to CGT.
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Deceased acquired the dwelling before 20 September 1985
In this case, the dwelling need not have been the main residence (home) 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, you disregard any capital gain or capital loss you make from a capital gains tax (CGT) event that happens to the dwelling if either of the following applies:
- Condition 1
- You disposed of your ownership interest within two years of the person's death – that is, if the dwelling was sold under a contract and settlement occurred within two years.
- This exemption applies whether or not you used the dwelling as your main residence or to produce income during the two-year period.
- The Commissioner has a discretion to extend this two-year period for CGT events (such as a sale) happening in the 2008–09 income year and onwards. Condition 1 would be met if the disposal was not within two years of the person's death, but you had applied for and been granted extra time by the Commissioner. See Commissioner may extend the two-year period.
- Condition 2
- 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
- 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 home under the deceased's will
- you, as a beneficiary, if you disposed 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 treat it as their main residence under the continuing main residence rule.
- A home is treated as your main residence from when you acquired your ownership interest until it actually became your main residence, provided you moved into the home when it was first practicable to do so after acquiring your ownership interest.
Example – full main residence exemption
Peter bought a home prior to 20 September 1985. When Peter died in February 1992 the home was passed to his beneficiary, Bob.
Under Peter’s will, Patti had a right to occupy the home. Patti was prevented from moving into the home until probate and administration of the estate was granted. The home was vacant from Peter’s death until probate and the administration of the estate was granted.
Patti moved into the home in September 1992 as soon as probate and administration of the estate was granted.
Patti used the home as her main residence until Bob disposed of it in March 2016. Patti did not have an ownership interest in any other dwelling from the date of Peter’s death.
As Patti moved into the home when it was first practicable to do so, the home will be treated as Patti’s main residence from the time of Peter’s death until Bob sold the home.
Bob will be 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 capital loss you make when a CGT event happens to the dwelling or your ownership interest in the dwelling if:
- condition 2 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
- condition 1 or 2 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.
Note: 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 home he bought in April 1990. He did not live in or own another home.
He died in January 2015 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.
If Petro did not sell the house within two years of his father's death, he may request the Commissioner to grant an extension of time, see Commissioner may extend the two-year period.
End of example