As a general rule, the trustees and beneficiaries of a deceased estate are able to disregard any CGT implications from the sale of a deceased person's principal residence, provided the sale of that property settles within two years of the deceased's death.
While this two-year period may seem sufficient, unforeseen circumstances, such as complex estate administration and challenges to the estate, may make it difficult to finalise a sale within this time frame.
Luckily, the ATO has a discretion to extend this period and trustees or beneficiaries can apply for a longer period to complete the sale of the property.
The ATO has released PCG 2018/D6, which contains some draft 'safe harbour' guidelines. If you satisfy them (and the guidelines are finalised) you will be able to work on the basis the ATO has exercised its discretion to extend the two-year period without having to apply.
To qualify for the safe harbour conditions, all the following must be met:
- During the first two years of receiving the interest in the
property, more than 12 months was spent addressing complexities in
the estate. Examples include:
- there was a challenge to the Will or to the ownership of the property;
- disposal of the property was delayed due to the existence of a life interest under the Will; and
- there were complexities in the administration of the estate or other delays in settlement of the sale outside the control of the trustee or beneficiary.
The property was promptly listed for sale once all complexities were resolved.
- Settlement of the sale was completed within six months of the date that the property was listed for sale.
- The extension requested by the trustee or beneficiary is not more than 12 months.
- Other factors, such as postponing the sale while waiting for the market to improve or refurbishment works at the property, were immaterial to the delay.
The onus of proving the trustees and beneficiaries have met these guidelines will remain with the trustees and beneficiaries themselves. Accordingly, good record keeping is a must.
Please remember this safe harbour is only a draft. You will not be able to rely upon its terms until it has been finalised.
Even with these safe harbour guidelines, you can still apply to the ATO to extend the period if you do not satisfy the guidelines. We have recently obtained a private binding ruling for a client where the ATO extended the time for sale for 7 years.
Cooper Grace Ward is a leading Australian law firm based in Brisbane.
This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.