Tax checklist: What to do when you inherit a property

Inheriting a property can be a special, emotional gift to some people, while others will consider it simply a procurement of bricks and mortar.
 

Either way, property inheritance or succession requires the inheritor, or beneficiary, to consider issues such as tax implications and government regulations.
 

The Australian Taxation Office (ATO) says that while there are no relevant inheritance or estate taxes, beneficiaries should still be aware of their tax obligations, including capital gains tax (CGT), income tax and stamp duty (transfer tax).
 

Such obligations may be the last thing a beneficiary wants to deal with if they're grieving the death of a loved one. Not making the situation easier is that every state and territory has different property inheritance laws and rules.
 

Below, we address some common questions:
 

Do I pay stamp duty on a deceased estate? 

Not generally, although some states will require a concessional, or waived fee rate.
 

Do I pay capital gains tax (CGT) on a deceased estate? 

Generally speaking, beneficiaries who sell a deceased estate within two years will be exempt from CGT. The ATO says a “two-year rule” applies to situations wherein the deceased estate is sold or disposed of within two years of the deceased person's death.
 

As well, the deceased person must have:

• Acquired the property before September 1985 (when CGT was introduced) or
• Utilised the property as their main residence and not used it to produce income.

The ATO notes the two-year period may be extended, but only under special circumstances, such as the deceased person's will being challenged.

What if a deceased estate is a rental property, or earns income?

That's OK, the ATO says, but beneficiaries will need to include such income in their annual tax return when the deceased estate has been fully finalised and administered. (This can take up to 12 months or more.)
 

The ATO advises that between the deceased person's death and the deceased estate's finalisation, beneficiaries may need to lodge a trust tax return, based on potential income.
 

NOTE: The information in this article is general in nature and provided as a market overview only. Always consult your financial advisor or accountant for advice specific to your personal circumstances.