Inheriting property can be quite an emotional and stressful experience, which many people will encounter at some point in their life. Whether the property is a family home or investment property, understanding the tax implications for such a valuable asset can be crucial in making sure it is handled effectively.

Receiving property doesn’t trigger a CGT (Capital Gains Tax) event, this occurs once the property is disposed of, either being sold, transferred or gifted. When the property is disposed of, the capital gain or loss is generally calculated by comparing the cost base and the selling price, although there are some CGT exemptions and other factors that can affect the end result.

Calculating the Cost Base

The cost base of an inherited property is affected by whether the property was the deceased’s main residence for the whole period of ownership, and periods the property was rented whether for the whole time, or for a portion of ownership.

If the property was the deceased’s main residence for the whole period of ownership, the cost base becomes the market value at the date of death, based on a valuation by a licensed valuer. The property can then be sold free of CGT implications if one of the following are satisfied,

  1. The property is sold within 2 years of the death, even if it was rented in the meantime.
  2. The property is used only as a main residence by one of the following, (be mindful that a person can usually only have one main residence at a time):
    1. A spouse of the deceased immediately prior to death
    2. A person who was offered to live at the property as part of the will
    3. A beneficiary

If the property was not the deceased’s main residence for the whole period of ownership, there will be CGT implications that need to be considered. The cost base for the inherited property can vary depending on when the deceased purchased the property,

  1. Prior to 20 September 1985 – market value at date of death
  2. After 20 September 1985 – the cost base of the deceased will be inherited

Partial exemptions may apply for properties inherited that weren’t a main residence. This suggests that you can apportion the gain by the non-main residence days divided by the total ownership days.

The ATO provides a checklist and step by step walk through which might assist with your own personal circumstances.

Given the complexity around the tax laws for inherited property, it is advisable to seek professional help from your accountant.

Related blogs:

Tax when an individual passes away

Author: Caleb Datson