If you inherit a deceased person's dwelling, you may be exempt or partially exempt from CGT when it is sold.
If you are a joint tenant and another joint tenant dies, their interest in the dwelling is taken to pass in equal shares to you and any other surviving joint tenants on that date.
Full exemption - deceased died before 20 September 1985
As you "purchased" the dwelling before 20 September 1985, any capital gain you make is exempt.
Full exemption - deceased died on or after 20 September 1985
- The deceased purchased the dwelling before 20 September 1985.
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 when the property is sold if either of the following applies:
- You sold your ownership interest within two (2) years of the person's death i.e. settlement occurred with two (2) years. This exemption applies whether or not you used the dwelling as your main residence or to produce income during the two-year period; or
- 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
- an individual who had a right to occupy the home under the deceased's will
- you, as a beneficiary, if you sold the dwelling as a beneficiary
The dwelling can be the main residence of one of the above people if they choose to treat it as their main residence. The requirement that the dwelling is the main residence of an individual who had right to occupy it under the deceased’s will is satisfied if the individual moves into the dwelling when it is first practicable to do so.
a) b. The deceased purchased the dwelling on or after 20 September 1985
You disregard any capital gain or capital loss you make when the property is sold if:
- condition 2 in a) above is met and the dwelling passed to you as a 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; or
- 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 produced income.
The example below demonstrates how this rule applies:
Roger was the sole occupant of a home he purchased in April 1990. He did not live in or own another home. He died in January 2009 and left the house to his son, Peter. Peter rented the house and then sold it 15 months after his father died.
Peter is entitled to a full exemption from CGT, as he “acquired” the dwelling after 20 August 1996 and sold it within two (2) years of his father’s death.
Next month we will look at the qualifying of a partial exemption from CGT.