Generally, there will be no Capital Gains Tax (“CGT”) in relation to the deceased’s dwelling if the property passed to you as an individual beneficiary of the estate or as the trustee of the estate, and:
If the deceased acquired the dwelling on or after 20 September 1985: if it was the deceased’s main residence and not being used to produce assessable income just before they died, and you dispose of it within two years of the deceased’s death; or
If the deceased acquired the dwelling before 20 September 1985: if the property was from the deceased’s death until your ownership ends, the main residence of the deceased’s spouse, an individual who had a right to occupy the dwelling under the deceased’s Will or the beneficiary.
In relation to (1), the ATO has the discretion to extend the two-year period.
The ATO has published a Practical Compliance Guideline (PCG 2019/5) which discusses the discretion to extend the two-year period.
The guideline states that, generally, the ATO will allow a longer period where the dwelling could not be sold and settled within two years of the deceased’s death due to reasons beyond your control that existed for a significant portion of the first two years.
The guideline outlines a “safe harbour” compliance approach, which means you can manage your tax affairs as if the ATO has allowed you a longer period.
However, the following conditions must be satisfied:
More than 12 months was spent addressing one or more of the following circumstances (the dwelling or Will is challenged, there is a life interest in the Will, the estate is complex, settlement was delayed/fell through);
The dwelling was listed for sale as soon as practically possible after those circumstances were resolved (and the sale was actively managed to completion);
The sale completed (settled) within 12 months of the dwelling being listed for sale;
None of the following contributed to the delay in disposal (waiting for the property market to pick up, refurbishing the house to improve the sale price, inconvenience on the trustee/beneficiary to arrange the sale or unexplained periods of inactivity of the executor in administering the estate); and
The longer period for which you would otherwise need the discretion to be exercised is no more than 18 months.
The guideline also provides examples of different relevant scenarios.
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