Capital Gains Tax (CGT) Upon Death

Here’s a great question and answer from Margaret Lomas (Destiny) email thread regarding CGT and PPRs.

Question:

Hello Margaret,

I was reading about CGT on principal residences and I was wondering if CGT is applicable on an elderly parent’s home after they have moved to a nursing home. If the home is rented out to pay for the ongoing expenses of nursing care, is CGT applicable after she has passed and the home sold. Alternatively, if a family member lives in the home until such time as she passes is capital gains also applicable.

Regards,

Katherine

Answer:

Hi Katherine,

Capital gains tax is a complicated issue, and I wanted to be sure I got this right for you, so I called my Property Success resident tax expert, Ian Rodrigues, and checked that my understanding around this was correct. Here is what he had to say:

  • If you own a Principal Place of Residence (PPOR) from which you are absent and you rent it out, you have a 6 year period where you can have an exemption from CGT, as long as you don’t claim another PPOR exemption.
  • If you don’t rent it out, the amount of time that you can claim that exemption is unlimited. This would mean that, as long as the period did not exceed 6 years, renting it out in order to help pay those expenses would be OK.
  • Once she passes the status of your mother’s CGT position shifts to those who inherit – if it is still considered her PPOR then the CGT status transfers, and the beneficiaries have 2 years to sell before they incur CGT.

If a family member lived there, and it was to simply take care of the place for your mother, and not a market based arrangement on the same terms as a third party tenant, then this would likely be considered to be the same as if no one lived there.

Of course, if your mother bought the property prior to 19 September, 1985, then all of the above is moot – it’s a pre CGT asset anyway and no CGT applies in any circumstance.

Always check with a good accountant or even the tax office itself though, to ensure that your own situation is covered by these rules. It’s quite easy to get a private ruling in the event that no one seems sure and that way, you have it all in writing!

Kind regards,

Margaret