Inheriting property and Capital Gains Tax (CGT)

When inheriting a property, there are many elements that need to be taken into consideration. One of the most common questions is around Capital Gains Tax (CGT).

Inheriting Residential Property

When inheriting someone’s primary residence, whether it belonged to your parents or anyone else, you receive it with a value determined at the time of the original owner’s passing. If the property was the deceased person’s primary residence, a special two-year rule applies.

This rule allows you the freedom to make various decisions regarding the property, such as leaving it vacant or renting it out. Whatever you choose, if you decide to sell the property and complete the sale within two years of the person’s death, you can avoid paying CGT on the sale.

Once the two-year period elapses, CGT becomes applicable, calculated based on the value of the property at the date the owner died. To extend this two-year period and maintain CGT-free status, you can make the property your primary residence. This will ensure you qualify for the primary residence exemption, removing CGT liabilities.

What about non-residential or commercial properties?

When it comes to inheriting properties of a different nature, such as vacation homes, investment properties or commercial real estate, it’s important to note that the CGT rules for these property types are significantly different from those of a primary residence.

If you inherit a property purchased before September 1985, you receive it with a value determined at the time of the owner’s passing. Subsequently, you will incur CGT (if you sell) on any future appreciation in the value of the property.

For properties acquired after September 1985, the rules are different again.

In this scenario, you inherit the property with a value equal to the original purchase price paid by the deceased, which includes any unrealised capital gains from the time of purchase to the present, even if the property’s purchase took place in the 1990s for a minimal cost.

For further information and clarification visit the ATO website – Inherited property and CGT for detailed explanations – Click here

If you have inherited a property and looking to sell, you'll need a conveyancer to assist with the sales process.
Walsh Conveyancing would be happy to guide you through the conveyancing process.

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