Main Residence CGT exemption & the Executor

CGT does not apply to the testator’s main residence if:

  1. It is sold within two years; whether or not it is used as a main residence or to produce income during the two-year period.
  2. From the deceased’s death until it is sold, the dwelling is not used to produce income and is the main residence of one or more of the spouse of the deceased immediately before the deceased’s death; or an individual who had a right to occupy the dwelling under the deceased’s will or as a beneficiary, you dispose of the dwelling.

A dwelling is considered to be your main residence from the time you acquire your ownership interest in it if you move in as soon as practicable after that time.

Earlier this year the Commissioner of Taxation extended the time that executors may dispose of the deceased’s main residence and still claim the main residence CGT exemption.

The “safe harbour” decision will assist executors where administration of an estate is delayed due to circumstances beyond their control such as lengthy family provision applications or extensive searches for beneficiaries, that result in delays carrying out their duty to dispose of the deceased’s property.

CGT Safe Harbour Rules

Executors have been granted an additional 18 months to dispose of the property, and will now have up to 42 months to settle the sale of a deceased’s main residence and still claim the exemption without having to seek the Commissioner’s approval if during the first two years post-death, over 12 months was spent addressing one or more of the following circumstances:

• a challenge to the ownership of the property or validity of the Will

• delays in disposal due to a life or other equitable interest

• the complexity of the administration of the estate

• a delay or termination in settlement of the disposal following circumstances beyond the executor’s control.

• The dwelling was listed for sale as soon as practicable after the above circumstances were resolved.

• Settlement occurred within 12 months of listing the dwelling for sale.

And disposal has not been delayed by:

• waiting for a pickup in the property market

• delay due to renovations to improve the sale price

• organising the sale was inconvenient for the executor

• unexplained periods of inactivity during the administration process.

• The extension of time required is no more than 18 months.

• What does this mean for executors?

The commission assumes that If the above conditions are satisfied, the executor is entitled to extend the two-year time limit up to an additional 18 months.

It is important that executors maintain sufficient records to prove they have met the above conditions, should they be called on for a compliance check by the ATO.

It is also important to note that the Commissioner has confirmed it will not entertain even a small delay beyond two years where no relevant circumstances are present.

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