The tax implications of disposing of a property from a deceased estate under the Capital Gains Tax (CGT) regime are dependent on several factors. These factors include the time taken between the date of death and settlement or transfer to a beneficiary, the date of property acquisition, and whether the property was the main residence of the deceased.
Scenario A - Pre-CGT dwelling:
In the case of a dwelling acquired by the deceased prior to 20 September 1985 (pre-CGT), the trustee of a deceased estate (also known as the legal personal representative or LPR) or a beneficiary can disregard any capital gain or loss if either of the following conditions are met:
The LPR or beneficiary sells their ownership interest in the dwelling within two years of the deceased's death (or such other time as the Commissioner of Taxation may determine). For the sale to qualify, the settlement of the contract of sale must take place within two years of the deceased's death.
If the dwelling is not sold within two years, a full main residence exemption may still apply if the dwelling was the main residence of the deceased's spouse, an individual who had a right to occupy the dwelling under the deceased's will, or an individual who became the owner of the property as a beneficiary.
If the dwelling is not sold within two years due to exceptional circumstances, the Commissioner may grant relief to extend the two-year timeframe in the 2008-09 income year and later years.
Scenario B - Post-CGT dwelling:
For dwellings acquired by the deceased on or after 20 September 1985, a full main residence exemption will apply if the dwelling was the deceased's main residence and was not income-producing immediately prior to their passing. In addition, either condition 1 or 2 from Scenario A above must be met.
Foreign residents:
It is important to consider whether the deceased was an excluded foreign resident at the date of their death. If the deceased was an excluded foreign resident, none of the CGT main residence concessions discussed earlier would apply. This rule also applies regardless of whether the deceased previously held the dwelling as their main residence for a period of time, as no apportionment would be granted to the LPR or beneficiary for that period.