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CGT Exemption on Inherited Property – Extension of the 2 Year Rule

Where a property is inherited and then subsequently disposed of, the disposal may be exempt from CGT.

The CGT exemption rules vary, depending on when the deceased originally acquired the property as per the following:

Pre-CGT

If the deceased acquired the property pre-CGT (before 20 September 1985) and the dwelling is sold by the beneficiary or the legal personal representative, a full main residence exemption will apply where either of the following conditions is met:

  1. The dwelling is sold within 2 years of the deceased’s date of death; or
  2. The dwelling was the main residence of a specified individual (eg. the deceased’s spouse, an individual who had a right to occupy the dwelling under the deceased’s Will, or a beneficiary under the Will) from the date of death.

Post-CGT

On the other hand, if the deceased acquired the property post-CGT (after 20 September 1985), a full main residence exemption will apply where either of the following conditions is met:

  1. The dwelling was the main residence of the deceased just before the date of death and was not at the time being used for the purpose of producing assessable income (eg. rent); or
  2. Either:

2.1 the dwelling was sold within 2 years of the deceased’s date of death; or

2.2 the dwelling was the main residence of a specified individual (see 1.2 above) from the date of death.

Extension of the 2 Year Rule

As can be seen, irrespective of when the deceased acquired the property (pre or post-CGT), the 2-year timeframe is crucial if the property is to be CGT exempt upon sale by the legal personal representative or beneficiary. However, until this recent change to the law, the 2-year period was inflexible – It did not take into account ‘no fault’ delays that can occur in the administration of a deceased estate (such as challenges to the Will or the deceased dying without a Will). To remedy this, the government has announced that the Commissioner will be given discretion to extend this 2-year period in certain circumstances. At the date of publication, no legislation has yet been introduced to effect this change, which is expected to apply from the date of Royal Assent.

For more information or advice, contact the experienced team at Rockliffs Lawyers.