We have recently dealt with a case where the property of a deceased estate was sold several years after the property owner’s death.  This situation has the potential for the beneficiaries of the estate to be liable to pay a significant amount of capital gains tax.

What happened?

The property was purchased in the 1970’s and was the main residence of the deceased until her death in 2008. The property was originally purchased by the deceased and her husband who died several years earlier.  The deceased became the 100% owner of the property after her husband’s death and she continued to live in the property until she passed away.

After her death, one of her children then moved into the property before they too passed away 12 months later.  The property was then vacant from this point until it was was sold in 2016 (meaning the property was vacant for approximately 7 years).

Potential Tax Consequences

A deceased estate typically only has two years from the date of death to sell the property and still be eligible for the full main residence exemption.  In this case, as the property was sold well outside this period, there was the potential for a large amount of capital gains tax to be payable on the sale.  It is important to note that although the property was a pre-CGT asset, the cost base of an inherited property becomes the market value on the date of death. 

To avoid this tax liability, we applied to the ATO for an extension on this period which is available in a limited range of circumstances.  We were able to argue a number of factors surrounding the difficulties in the administration of the Estate.

The Result…

Our application to the ATO was successful and as a result, the property was eligible for the full main residence exemption.  This means that no capital gains tax was payable on the sale of the property which was a fantastic result for the beneficiaries of the estate.

If you have any questions about the taxation of deceased estates or capital gains tax, be sure to speak to us for essential advice when you need it.

This article was written by Ethan Le Brocq – Find out how to contact Ethan here.

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