Avoiding Capital Gains Tax on Inherited Property
- Arnold Shields
- Apr 28, 2023
- 3 min read
Updated: May 15
When a loved one passes away, managing their estate is not only an emotional responsibility but also a legal and financial one. One of the most significant financial considerations is how to handle any potential Capital Gains Tax (CGT) on property passed down through a deceased estate.
The good news? There are several effective strategies that can minimise or even eliminate CGT entirely, if you know what to do.
1. Claim the Main Residence Exemption
If the property was the deceased's main residence and was not used to produce income (like renting it out), it may be fully exempt from CGT upon sale. To qualify:
The property must have been the deceased's main residence for at least part of the ownership period.
It must be sold within two years of the date of death (extensions can sometimes be granted).
Alternatively, if you move into the property and make it your primary residence, you may continue to claim the main residence exemption, further delaying or eliminating any CGT on eventual sale.
Pro Tip: Even if the property earns rental income in the meantime, selling within two years can still qualify for exemption.
2. Transfer to a Spouse or De Facto Partner
If the property is transferred to the deceased's surviving spouse or de facto partner, CGT does not apply at the time of transfer. However:
The spouse inherits the property’s cost base (usually the market value at the date of death).
CGT will be assessed if and when they choose to sell the property later.
3. Retain the Property as an Investment
Keeping the property in the estate or transferring it to a beneficiary who holds it as an investment doesn’t trigger immediate CGT. Tax will only be payable when the property is eventually sold, offering flexibility and the potential for long-term capital growth.
4. Obtain a Market Valuation at Date of Death
The property's cost base resets to its market value at the date of the deceased’s death. This valuation is critical and forms the benchmark for calculating any future CGT.
Tip: Ensure the valuation is done by a qualified valuer and well-documented—it’s a key piece of evidence for the ATO.
5. Leverage Small Business CGT Concessions
If the property was used in a small business operated by the deceased, CGT concessions may apply. These could:
Substantially reduce the capital gain
Defer CGT entirely
Or in some cases, eliminate it altogether
You'll need to satisfy specific eligibility criteria under the small business CGT concessions. A professional review is essential.
6. Be Aware of Foreign Resident Rules
Additional CGT rules apply if the deceased or the beneficiary is a foreign resident at the time of death or transfer. In many cases, foreign residents are ineligible for the main residence exemption, and planning around these rules is essential to reduce exposure.
Final Thoughts
While losing a loved one is never easy, understanding the CGT implications on their property can protect the estate and beneficiaries from unnecessary tax burdens. At Dolman Bateman, we guide you through every step with compassion, clarity, and expert knowledge of Australian tax law.
Need help with deceased estate tax planning or CGT advice?📞 Call us at 02 9411 5422 or book a consultation.
Let’s make sure your loved one’s legacy is preserved, without unnecessary tax consequences.
Disclaimer:
The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. While every effort has been made to ensure the accuracy of this content at the time of publication, tax laws and regulations may change, and individual circumstances vary. Dolman Bateman accepts no responsibility or liability for any loss or damage incurred as a result of acting on or relying upon any of the information contained herein. You should seek professional advice tailored to your specific situation before making any financial or tax decision.
