Tax 'safe harbour' for inherited property

September 2018

If you've had the good fortune to inherit property, there are particular conditions that must be met within the main residence exemption provisions to avoid a nasty capital gains tax bill.

Inheriting property may well be a great windfall for those of us fortunate enough to be the beneficiary, however there are some rules that are important to understand to access the main residence exemption from CGT, which may be possible if certain conditions can be met. If not, there's a potentially nasty sting in the inheritance tail.

The ATO has outlined a 'safe harbour' for inherited property to help simplify tax requirements for beneficiaries and executors to ensure they don't have the threat of a large tax bill hanging over their heads. In some cases, the conditions require that an inherited property be sold with two years of the date of death to qualify for the exemption (though the Commissioner has the discretion to extend this in some situations).

The safe harbour allows beneficiaries and executors to apply the exemption if the property is sold more than 2 years after the date of death without having to seek approval from the ATO, as long as the property is sold within 3 years of the date of death and certain other conditions are satisfied.

This could be relevant where there was a delay in selling the property because of factors beyond the control of the beneficiary or executor such as a challenge to the will or where the complexity of the estate delays the completion of the administration process.

Speak to your accountant or solicitor

If you're managing the settlement of an estate or have inherited property as a beneficiary, it's worth discussing any potential sale or retention of the property with your accountant as part of any future tax planning. Contact us on 02 9957 4033.

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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