Tax Tip 249: The 2 year Main Residence Rule After Death

Where a person inherits a property which was the main residence of the deceased at the time of their death, and it was not income producing at the time of the death, the beneficiary (the person inheriting) can sell that property CGT free if sold within 2 years of the date of death. The settlement needs to happen before the 2 years is up, because of the wording in s 118-195 ITAA97 which indiciates ‘the ownership interest’ must end before the 2 years is up.

see item 1 in the table at
INCOME TAX ASSESSMENT ACT 1997 - SECT 118.195 Dwelling acquired from a deceased estate



Example

Bart’s dad Homer dies on 1 March 2019. Homer’s will leaves Homer’s main residence to Bart and Bart inherits 123 Smith Street with title transferred in August 2019.

This property was Homer’s main residence at the date of his death. Bart is unsure, initially, on whether to keep the property and develop it or to just sell it tax free.

Eventually Bart enters into a contract to sell to the neighbour Ned. Contracts are entered into on August 2020 with a 6 month settlement.

During this time there is a boom and the property doubles in value.

Bart needs the settlement to happen before 1 March 2021 for the property to be CGT free as this is 2 years since Homer carked it.

What the contract date was is irrelevant. It is also irrelevant that Bart didn’t live in the property.

 

If the property is sold and settles 2.5 years after death, will cg be on the gain for those 2.5 years? Ie its a good idea to get a valuation at death just in case?

 

Cost base will be call at death