Capital gains tax explained, Part 2: Deceased estates
HLB Mann Judd director of tax Bill Nussbaum spoke to Zoe Fielding about the rules that apply to capital gains tax (CGT) on deceased estates.
This is a continuation from Part 1: Common misconceptions around capital gains tax.
“There are no death duties in Australia and a main residence property acquired from a deceased estate is generally not subject to CGT,” says HLB Mann Judd director of tax Bill Nussbaum. “However there are some important rules to consider to ensure the CGT exempt status is not lost.”
Pre-CGT Property
Capital gains tax was introduced on September 20, 1985. Nussbaum says that if the deceased person acquired the main residence on or before September 19, 1985, the following rules apply:
- The property is CGT exempt if it is sold within two years of deceased’s death.
- It is still CGT exempt if sold after two years, providing the following tests are met:
- The property was not used to produce income (rented out)
- It was the main residence of the person inheriting the property, for example the deceased’s spouse or an individual having a right of occupancy the property under the will.
Post-CGT Property
If the deceased person bought their main residence after September 19, 1985, stricter tests apply to determine whether gains on the sale of the property will be subject to CGT.
All conditions noted above must be satisfied. In addition, the property must have been the deceased person’s main residence just before their death and not used to produce assessable income at that time.
Investment properties of the deceased
Generally, no CGT is payable on the transfer of a property to a beneficiary under a will. CGT will be applicable when the property is eventually sold by the beneficiary. The cost base is calculated as follows:
- For pre-CGT investments properties the cost base is calculated based on the market value of the property at the deceased date of death.
- For post-CGT investment properties the cost base is calculated based on the deceased’s original cost.
- The 50% CGT discount also applies to the sale of inherited properties that have been held for more than 12 months.
To read the third part of this series, Investment property appreciation, click here.