Capital Gains on a deceased estate

Question

Hi,
I am a Non-resident for tax purposes (Australian) having lived in Tokyo for over ten years. I inherited the family home after my mother passed earlier this year.

I have been renting it to a family friend and have made significant improvements to it – (around $36,000 Australian). The Family friend would like to purchase the house and I am wondering what Capital Gains Tax I would be liable for if any, and if there is any way to minimize it.

The property has a mortgage of around $165,000 and is valued at around $330,000.

(I was wondering if having the property as my primary place of residence would make any difference as I lived there since we built it in the mid 1990’s, unil I left Australia. It is probably still my registered home as well.)

Thank you
Simon Chambers

Answer

You have nothing to fear. Assuming the home was covered by your mother’s main residence exemption when she died then section 118-195 (see the end of this answer for the legislation) allows you two years from the date of her death, in which to sell the property without any tax consequences. It does not matter that the property was used to produce rent during that time. Just make sure you get the sale organized within two years of your mother’s death. One day over and the whole two year concession is lost.


You are liable to pay tax on the rent you received. You will need to lodge a non resident tax return. Here is a link to our mail in section for non residents. This is not a sales pitch, just that you will find the form useful to help you collect the information you will need.

http://www.bantacs.com.au/docs/m3.pdf



Dwellings acquired from deceased estates
SECTION 118-195 Dwelling acquired from a deceased estate ITAA 36

118-195(1)
A *capital gain or *capital loss you make from a *CGT event that happens in relation to a *dwelling or your *ownership interest in it is disregarded if:

(a) you are an individual and the interest *passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and

(b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied.
Beneficiary or trustee of deceased estate acquiring interest
Item One of these items is satisfied And also one of these items
1 the deceased *acquired the *ownership interest on or after 20 September 1985 and the *dwelling was the deceased’s main residence just before the deceased’s death and was not then being used for the *purpose of producing assessable income your *ownership interest ends within 2 years of the deceased’s death
………..
2 the deceased *acquired the *ownership interestbefore 20 September 1985 the *dwelling was, from the deceased’s death until your *ownership interest ends, the main residence of one or more of:
(a) the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or
(b) an individual who had a right to occupy the dwelling under the deceased’s will; or
(c) if the *CGT event was brought about by the individual to whom the *ownership interest *passed as a beneficiary – that individual

Note 1:
You may make a capital gain or capital loss if the dwelling was used for the purpose of producing assessable income: see section 118-190.

Note 2:
In some cases the use of a dwelling to produce assessable income can be disregarded: see sections 118-145 and 118-190.

Note 3:
There are special rules for dwellings acquired before 7.30 pm on 20 August 1996. These rules also affect the operation of section 118-192 and subsections118-190(4) and 118-200(4): see section 118-195 of the Income Tax (Transitional Provisions) Act 1997.

View history note
Hide history note
118-195(2)
Only these *CGT events are relevant:

(a) CGT events A1, B1, C1, C2, E1, E2, F2, I1, I2, K3, K4 and K6 (except one involving the forfeiting of a deposit); and

(b) a CGT event that involves the forfeiting of a deposit as part of an uninterrupted sequence of transactions ending in one of the events specified in paragraph (a) subsequently happening.
Note:
The full list of CGT events is in section 104-5.

View history note





. .
Have a question about tax you need answered?

. Ask your own tax question here for only $79.95