People who want to delay the sale of a dwelling they receive as a beneficiary of a deceased estate, so they can renovate or wait for the property market to pick up, will not get much sympathy from the Australian Taxation Office when it comes to determining their capital gains tax liability.
Under income tax law, if you dispose of an interest in a dwelling that passed to you as an individual beneficiary or as the trustee of the deceased’s estate within two years of the deceased’s death, any capital gains you make on disposal is disregarded. Capital losses are also disregarded.
The property must have been the deceased’s principal place of residence.
The ATO can allow a longer period for disposal, after reviewing the circumstances. It has issued a draft compliance guideline (PCG 2018/D6) outlining the factors it will consider when deciding whether to exercise its discretion to allow a longer period.
Generally, the ATO will allow a longer period where the dwelling could not be sold within two years due to reasons beyond the control of the beneficiary or trustee. It says that in each case it will weigh up all the factors and circumstances.
The guideline sets out a safe harbour compliance approach. If the beneficiary’s circumstances are similar to the following conditions, they can manage their tax affairs as if the ATO had allowed a period longer than two years:
- during the first two years after the interest in the dwelling passed to the beneficiary, more than 12 months was spent addressing matters such as a challenge to the ownership of the dwelling, a life interest delays disposal, the complexity of the deceased estate causes delays;
- the dwelling was listed for sale as soon a practically possible after those circumstances were resolved;
- the sale is completed (settled) within six months of the dwelling being listed for sale; and
- the longer period for which the beneficiary would otherwise need the discretion to be exercised is no more than 12 months.
Factors that would weigh against allowing a longer period include:
- waiting for the property market to pick up before selling the dwelling;
- delay due to refurbishment of the house to improve the sale price;
- inconvenience on the part of the beneficiary or trustee to organise the sale of the dwelling; or
- unexplained periods of inactivity by the executor in attending to the administration of the estate.