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When a loved one passes away, dealing with their estate can be a difficult and emotional time. One of the challenges that come with managing a deceased estate is dealing with the tax implications, including the potential for capital gains tax (CGT) on any property left behind. However, with some careful planning and strategic decisions, it is possible to minimize or even avoid CGT on the deceased estate property.
Here are some tips to help you navigate the process and potentially reduce your tax liability:
- Use the main residence exemption
If the deceased's property was their primary residence, it may be eligible for the main residence exemption. This means that no CGT is payable on the sale of the property. However, there are some criteria that need to be met, including that the property must have been the deceased's primary residence for at least part of the time they owned it.
Alternatively, if you move in and claim the main residence exemption, it carries forward the exemption until it is sold.
- Transfer the property to a spouse
If the deceased's property is transferred to their spouse or de facto partner, no CGT is payable at the time of transfer. However, if the spouse later sells the property, CGT may apply.
- Keep the property as an investment
If the property is retained as an investment, CGT may be deferred until the property is sold. This can be a useful strategy if the property is expected to increase in value over time.
- Obtain a market valuation
When a property is inherited, the cost base for CGT purposes is usually the market value of the property at the time of the deceased's death. It is important to obtain a professional market valuation at this time to ensure that the cost base is accurate and to avoid any potential disputes with the Australian Taxation Office (ATO).
- Use the small business CGT concessions
If the deceased owned a small business that used the property, they may be eligible for the small business CGT concessions. These concessions can significantly reduce or even eliminate the CGT payable on the sale of the business or any assets associated with the business, including property.
If the property meets the main residence exemption and is sold within two years of the deceased’s death, even if the property earned income in the meantime, the property will be exempt from CGT.
Please note that there are additional rules when foreign residents are involved.
With careful planning and consideration, it is possible to minimise the CGT liability and ensure that your loved one's estate is managed in the most effective way possible.
This blog has been prepared for the purposes of general information and guidance only. It should not be used for specific advice or used for formulating decisions under any circumstances. If you would like specific advice about your own personal circumstances, please feel free to contact us on 02 9411 5422. We can help make sure the right method is used to give you the maximum possible tax deduction associated with any of these methods.
