When it comes to Capital Gains Tax (CGT) and inherited property, Australian tax law provides important protections for beneficiaries. No CGT is payable when you inherit a property from a deceased relative, nor when you later pass it on to your own beneficiary upon your death, as transfers from a deceased estate are considered disregarded events. Your cost base for CGT purposes depends on the timing of the deceased’s ownership: if they acquired the property after 20 September 1985, you inherit their original cost base, while if it was acquired before that date, your cost base resets to the market value at their date of death. This base can be increased by eligible costs such as legal fees incurred by the estate.
CGT only arises if you sell the property during your lifetime, and if you have held it for more than 12 months, you may be entitled to the 50% discount. Importantly, when you pass away and the property passes to your beneficiary, their cost base automatically resets to the market value at your date of death, meaning any unrealised gains up to that point are disregarded in your estate’s tax return. They inherit this stepped?up basis, so any future CGT liability is measured only from the value at your death.
A full CGT exemption may also apply if the property was the deceased’s or your main residence and not income?producing at the time of death, provided your beneficiary sells it within two years (with possible extensions granted by the ATO). However, if the property is rented out or held beyond this period, the exemption lapses and standard CGT rules apply. These principles highlight the importance of timing, residence status, and accurate record?keeping in managing estate property and minimising tax exposure.
We have in house expertise in this area, please reach out to us if you require tax advice on purchase/sale of property under margin scheme.
Disclaimer: The material and contents provided in this blog are general guide and informative in nature only. They are not intended to be seen as legal and tax advice. If expert assistance is required, you should seek your own advice for any legal, tax or investment issues raised in your affairs.