Benjaman Franklin once said “nothing is certain except death and taxes”, but can you avoid the ‘taxes’ part on the family home when a loved one passes away? The short answer is potentially yes.

Capital Gains Tax (CGT) implications on the disposal of a property from a deceased estate will be contingent on several factors. These include the time from the date of death to settlement or transfer to a beneficiary, the date the property was acquired, and whether the property served as the main residence for the deceased.

For pre-CGT dwellings acquired by the deceased prior to 20 September 1985, the trustee of a deceased estate or beneficiary can potentially disregard a capital gain or loss from the dwelling (for example, if the dwelling is disposed of within two years of the deceased’s death). If the dwelling was not disposed of within two years, a full main residence exemption may potentially still apply if the deceased’s dwelling was the main residence of the deceased’s spouse, or an individual who had a right to occupy the dwelling pursuant to the deceased’s will, or an individual to whom the ownership interest passed to as a beneficiary.

If the dwelling is not disposed of within two years due to exceptional circumstances, relief may be granted by the Commissioner to extend the two-year timeframe. The ATO has published a Practical Compliance Guide 2019/5 which details factors to be considered when deciding whether to apply this discretion. If these safe harbor provisions are relied upon by legal personal representatives (LPRs) and beneficiaries to extend the two-year period in exceptional circumstances, it is important to maintain all records necessary to support the claim in the event of an ATO compliance check.

For post-CGT dwellings acquired by the deceased on or after 20 September 1985, a full main residence exemption will generally only be able to be applied if the dwelling was the main residence of the deceased throughout the entire ownership period and was not income-producing, and the dwelling was disposed of within two years, and/or disposed after meeting the conditions in the pre-CGT scenario with a deceased spouse, or an individual who had a right to occupy the dwelling from the deceased will or an beneficiary ownership interest.

It is also important to note whether the deceased was an excluded foreign resident at the date of their death. If the deceased was an excluded foreign resident, none of the CGT main residence concessions from above would apply, regardless of whether the deceased previously held that dwelling as their main residence for a period of time.

In summary, the CGT implications on the disposal of a property from a deceased estate can be complex and depend on various factors. LPRs and beneficiaries must understand the conditions that apply to pre-CGT and post-CGT dwellings and whether the deceased was an excluded foreign resident.

It is recommended to always obtain professional advice pertinent to you and your family’s circumstances when there is a deceased estate, to help to potentially minimise any CGT liabilities on the family home, and ensure a smooth and efficient administration of the deceased estate.