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Did you know Capital Gains Tax (CGT) can apply to the assets of a deceased loved one’s assets?

In Australia, the general rule is that CGT does not apply to assets of a deceased estate. However, where there is a rule there is always an exception.

Was the asset acquired by the deceased before the 20 September 1985?

  • If the property was acquired by the deceased before 20 September 1985, the asset will be exempt from CGT as the legislation governing CGT had not yet come into effect. The exception to this exception is if there have been major capital improvements to the property on or after 20 September 1985.
  • If the property was acquired by the deceased after 20 September 1985, there may be CGT implications.

Did you inherit the property after 20 August 1996?

  • If you inherited the property before 20 August 1996, the property may be partially exempt from CGT. The “Main Residence Exemption” came into effect on 20 August 1996.
  • If you inherited the property after 20 August 1996, the property may not incur CGT implications, however this is subject to further questions.

Was the asset the deceased’s main residence immediately before they died?

  • If the asset was used as the deceased’s main residence immediately prior to their death, then the property may be exempt from CGT. However, further conditions apply.
  • If they asset was not used as a main residence for the deceased prior to death, there may be CGT tax implications.

Was the property producing an income?

In other words, was the inherited property being rented out at the time of the deceased’s death?

  • If the property was producing an income? Then the property may have CGT implications.
  • If the property was not producing an income, the property may be exempt from CGT implications.

Was the property disposed of within 2 years of the date of death of the deceased?

  • If the property was disposed of under a contract within 2 years of the date of death of the deceased, the property will be exempt from CGT implications.
  • If the property was not disposed of under a contract within 2 years of the date of death of the deceased, the property may attract CGT implications.

Are there any exceptions?

  • Yes, things that can extend the 2 year period is if you had a right to occupy or life tenancy over the property. Once you forfeit that right, the clock starts ticking.
  • The only other exception is if the disposal of the property was delay by exceptional circumstances outside of your control. This may include an exceptionally difficult grant of probate/letters of administration, estate disputes that prevent the sale of an asset or delays in a transmission application or survivorship application (if appliable).

Lynn and Brown Lawyers encourage anyone who has questions or concerns in relation to CGT of a deceased estate to get in touch with one of our experienced estate planning lawyers. You can contact us at admin@lynnandbrown.com.au or by calling 9375 3411.

About the Author: Garrick was admitted as a lawyer in 2017 after obtaining a Bachelor of Laws and Bachelor of Business (majoring in Economics) from Edith Cowan University in 2014. 

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