Deceased estate CGT exemptions

August 20, 2019

The ATO has provided a useful guideline and “safe harbour” for when the executor or beneficiaries of a deceased estate can apply CGT exemptions. Generally, the main residence exemption applies on the deceased’s main residence if disposed within 2 years of the date of death. The Commissioner also has discretion to extend the 2-year limit.

Disposal within 2 years of death.
If the deceased’s dwelling was initially acquired before 20 September 1985, any capital gains or losses are disregarded if the property sale settlement date is within 2 years of the person’s death. If the deceased acquired the dwelling after 20 September 1985, the property needs to be the deceased person’s main residence and disposed within 2 years for the CGT exemption to apply.

Commissioner’s discretion to extend the 2-year period.
On 27 June 2019, the ATO published Practical Compliance Guideline 2019/5 and provided a “safe harbour” and guidance on the situations where the Commissioner may allow a longer period. PCG 2019/5 enables you to treat the Commissioner’s discretion as having been exercised in their favour, if ALL of the following conditions are met:

  • you spent more than 1 year addressing one or more of the circumstances below:
    • the ownership of the dwelling, or the will, is challenged;
    • a life or other equitable interest given in the will delays the disposal of the dwelling;
      the complexity of the deceased estate delays the completion of estate administration; or
    • settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of your control;
  • the dwelling was listed for sale as soon as practically possible after above circumstances were resolved;
  • the sale settled within 12 months of the dwelling being listed for sale;
  • none of the following circumstances could have been material to the delay:
    • waiting for the property market to pick up,
    • delay due to refurbishment of the house to improve the sale price,
    • inconvenience for trustee or beneficiary to organise the sale, or
    • unexplained periods of inactivity by the executor in administering the estate; and
    • the discretion otherwise sought would be no more than 18 months.

To utilise the “safe harbour”, you should also maintain all records necessary to support the claim that you are eligible.
Where your situation does not meet the “safe harbour” requirement, the Commissioner may still grant discretion to allow a longer period if the dwelling could not be sold within the 2-year period due to reasons beyond your control, and those reasons existed for a significant part of the 2 years. Some other contributing factors include sensitivity of any personal situations and difficulty in locating all beneficiaries to prove the will.

DAA Comment

It important to highlight in the ATO’s guideline that it focuses on the cause of the delay rather than the length of the delay when determining whether an extension can be granted. While the weight on each factor depends on the circumstances of each particular case, the ATO will not even allow an extension for a very short delay if there are no relevant circumstances present.  If you have any questions regarding this topic please contact us.