Navigating inherited assets in Australia involves critical tax considerations—specifically regarding capital gains tax (CGT). Whether an asset was acquired before or after 20 September 1985 (the CGT introduction date) can significantly influence both its cost base and the tax implications upon sale.
CGT Basics for Inherited Assets
When you inherit an asset, it’s considered a rollover event—meaning CGT doesn’t apply at that moment. Instead, CGT is triggered only when you dispose of the asset, unless specific exemptions apply
Pre‑CGT vs. Post‑CGT: What’s the Difference?
Pre-CGT Assets (Acquired Before 20 September 1985)
These assets are usually CGT-exempt—that is, no capital gain is taxed for the period before 20 September 1985. However, if improvements were made after that date, the entire asset is treated as a single pre‑CGT asset with a cost base based on its market value at the deceased’s date of death.
Post-CGT Assets (Acquired After 20 September 1985)
For assets acquired after CGT started, you generally inherit the deceased’s original cost base and acquisition date. In certain cases, especially where the deceased’s main residence is involved, you use the market value at date of death as the cost base.
How CGT Is Calculated on Inherited Assets
Sell an Inherited Asset? Here’s how CGT works:
- Use the cost base (as described above) versus the sale price to calculate the capital gain.
- For pre‑CGT assets, the cost base is the market value on the date of death.
- For post‑CGT assets, it is usually the original cost base.
- You may qualify for the 50% CGT discount by holding the asset for more than 12 months. The “acquisition date” differs based on whether the asset is pre‑ or post‑CGT.
- House sale may be fully exempt if:
- It was the deceased’s main residence
- You sell within two years of death
- Use of the property post-inheritance doesn’t negate the main residence exemption.
Other Important Considerations
- Foreign Residents & Main Residence Exemptions
If the previous owner or you as beneficiary are foreign residents, main residence exemptions may not apply. - Cost Base Enhancements
Legal fees incurred by an executor or trustee to transfer assets may be added to your cost base. - Record Keeping Matters
Maintain valuations, acquisition costs, legal documents, and executor records—these are essential to establish the correct cost base
Conclusion
Understanding the distinction between pre‑CGT and post‑CGT inherited assets is vital for managing tax obligations effectively. Key steps include:
- Identifying whether assets were acquired before or after 20 September 1985.
- Determining and documenting your accurate cost base.
- Applying relevant exemptions—especially the main residence exemption within two years.
- Leveraging the 50% CGT discount when applicable.
- Keeping thorough records to support future calculations or audits.
While these rules provide a helpful framework, every estate is unique. For tailored advice and strategies to optimise tax outcomes, consult with a tax professional or legal advisor.
FAQs
Q1: Is there a tax when I inherit an asset?
No. Inheriting an asset is typically a CGT rollover with no immediate tax liability. CGT is triggered only when you sell or otherwise dispose of the asset.
Q2: How do I figure out the cost base of inherited property?
- Pre-CGT assets (pre‑20 Sep 1985): cost base is the property’s market value at the time of death.
- Post-CGT assets: cost base is usually the deceased’s original cost or market value in certain main residence cases
Q3: Can I avoid CGT on inherited property?
Yes—if the inherited property was a main residence and is sold within two years, you may qualify for a full exemption. Otherwise, apply standard CGT rules
Q4: Can I use the 50% CGT discount on inherited assets?
Yes, if you hold the inherited asset longer than 12 months. The acquisition date is important: it’s the deceased’s acquisition date for post‑CGT assets or death date for pre‑CGT assets.
Q5: What happens to pre‑CGT status if significant improvements are made?
If a pre‑CGT asset has major improvements post-1985, it’s treated as a single CGT asset, with the cost base adjusted to market value at death plus the improvement costs
Source: ATO
———————————————————————————————————————-
BOOK YOUR FREE 15 MINUTE CONSULTATION
We offer a 15-minute no obligation consultation to existing property investors, first home buyers and small business owners who are looking at property investments, business and asset protection.
Please complete the form and a member of our team will be in touch shortly- CLICK HERE TO BOOK YOUR FREE CONSULTATION
How can we help?
If you have any questions or would like further information or you are seeking property tax advice, please feel free to contact our office via email –info@investplusaccounting.com.au or phone 02 9299 7000 to either speak with someone or arrange a time for a meeting so we can discuss your requirements in more detail.
We have offices in Bankstown, Cronulla, Sydney CBD, Bowral, Liverpool, Adelaide, New Zealand and Dubai. You can arrange a free 15 minute no obligation chat to discuss your options. Please arrange an appointment with our office by clicking here
General Advice Warning
The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.
Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.
Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Investment Plus Accounting Group, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.