Timing for Capital Gains Tax Liability
When a person dies and leaves the family home as part of their estate (Principal Place of Residence), it is very important that once a Grant of Probate (or Administration) is obtained, the Principal Place of Residence is sold and settlement takes place within two years of the date of death of the deceased (this means that contracts must have been exchanged and completed).
If the Principal Place of Residence is not sold within the relevant time frame, there may be capital gains tax consequences for the estate upon the eventual sale of the Principal Place of Residence. The property can be rented out during the two year period and the use of the property for income-producing purposes will not attract any capital gains tax. Provided that the property is sold and settlement takes place within the two year period, the Principal Place of Residence exemption applies.
Land Tax Implications
The Principal Place of Residence exemption from land tax continues to apply for up to 2 years from the date of death of the owner. Where the property has not been sold/transferred within the 2 years, an extension for exemption from land tax may be granted by the Commissioner for Revenue NSW, if the property is used or occupied by another person who is the beneficiary of the estate. This exemption may also be extended if another person is granted a right of occupancy under the will of the deceased and that person occupies the property as his or her principal place of residence, or even where such right is granted by the trustee of the deceased estate.
However the Principal Place of Residence may be subject to land tax where the trustee of the deceased estate rents the property out even during the 2 year period following the owner's death, in circumstances where the period of letting of the property exceeds a continuous period of 6 months (or a total period in excess of 182 days in the calendar year), preceding each taxing date. In such circumstances, the property will be liable for land tax in the following tax year unless the rental income derived does not exceed the amount required to maintain the property (including outgoings but not mortgage payments).
It is very important in the drafting of Wills to be mindful of the potential implications of capital gains tax and land tax where the estate includes the family home. If reasonable care is not taken, the result may be costly to the estate and the beneficiaries.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.