Tax Tip 94: Inheriting Pre-CGT Property

Inheriting Pre-CGT Property

CGT came into force on 20 September 1985 and property owned prior to this date generally remains CGT free until sold. It doesn’t matter whether the property is the main residence or rented out.



However when a person that owns pre-CGT property dies the pre CGT property will retain its CGT exempt status if it is sold within 2 years of the death of the deceased. Section 118-195 ITAA97 INCOME TAX ASSESSMENT ACT 1997 - SECT 118.195 Dwelling acquired from a deceased estate



Where the property is not sold within 2 years it will then be subject to CGT with the cost base being the valuation as of the date of death. Note that the 2 years is strict and the Commissioner of Taxation does not have the power to extend this.

 

What's the situation with stamp duty on the transfer ? Is it payable when it transfers from the deceased to the beneficiaries?

 

Putting up a working example would be great @Terry_w

 

Frank bought an investment property in 1960 for $213. It is now worth $1mil and Frank dies leaving it to his son. Son sells it on 1/1/2018 for $1.5mil and pays no tax.

Frank also had an identical property which he left to his daughter. She sells this property on 3/1/2018 for $1.5mill but she will be taxed on the gain from $1mil at the date of death. $500k less other expenses.

 

No

 

Hi Terry, what if it is the deceased's PPOR? Guessing that if a beneficiary lives in it, then normal PPOR rules apply when selling ie. no CGT. However, what if the beneficiary then rents it out? Does selling within 2 years still not incur CGT?

 

If lived in then the normal main residence rules will apply - generally exempt unless earning income.

If rented out then the property will be subject to CGT from the date of renting it. Cost base will be the value at the date of death.

 

I believe the 2 year period can be extended if there is a delay in probate being granted. For example if the will is contested and it drags out through the courts.

 

The legislation (s118-195) doesn't permit this. Do you have any cases in which this has happened?

 

Is the timeframe the same for real property that is won in say a raffle or lottery? A few of them specify that you can sell it tax free if you choose - I assume they're using the same legislation as this?

 

Here is a private ruling I just found
RBA Content | Australian Taxation Office

It involves a dispute which took the sale over 2 years and the ATO reported "The Commissioner does not have any discretionary power to extend the two year time limit period mentioned above."

 

I don't know, but would think the normal rules apply. You acquire a property - if you live in it the main residence exemption can apply, if you don't it cannot. Not sure what the cost base would be.

 

But only after the 2009 financial year:


Inheriting a dwelling | Australian Taxation Office

 

They call me quick draw

 

It can also apply to property purchased after 20 Sept 1985, See row 1 in the table of s 118-195.:

AND

For some reason the row 2 in the table , which relates to pre CGT property, doesn't give any discretion to the commission to extend the 2 years.

 

It's getting too difficult now. I can't even see column 3.

If I ever got questioned I'd refer them to their website (and keep a photo copy)

 

Looks like winnings are exempt from CGT:

"winnings or losses from gambling, a game or a competition with prizes"

Exemptions | Australian Taxation Office

 

Thanks - I wonder if it's 'forever' ?

 

If you receive a gift the 'market substitution rule' will probably apply so when you sell it your cost base will probably be the value at acquisition.

 

I only go by what's on the ato website. I got no credentials, only street creds and no certificate was ever issued.