Warning: 30 June deadline on CGT liabilities and selling deceased foreign resident’s main residence

Mark Morris*

Following recent legislative amendments, the main residence exemption will not be available in relation to a deceased individual who lived continuously overseas for a period of more than six years as at the time of their death. 

This change was originally announced by the Federal Government as part of the 2017-18 Federal Budget on 9 May 2017. The subsequent Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 was introduced and was passed by both houses last December.

However, under transitional rules the exemption continues to be available in respect of an eligible main residence acquired prior to 9 May 2017 provided the executor or administrator (or beneficiary) entered into a contract for sale of that dwelling on or before 30 June 2020.

It is also a requirement that at all times between 9 May 2017 and the date of sale of the dwelling that the ownership interest in the dwelling was held by the deceased person, the executor or administrator of the estate and a beneficiary who received the dwelling under the estate (or a combination thereof).

Clearly the ability to rely on this exemption may have been substantially reduced because of the uncertainty arising from the COVID-19 lockdown, including the ability to effectively enter into contracts for the sale of such dwellings.

Nonetheless as currently legislated the exemption for pre-9 May 2017 dwellings will only be available where a contract of sale is entered into by 30 June 2020.

Where this condition is not met it will be necessary to identify the cost base of the property in order to determine any resulting capital gain or loss. This may be particularly difficult as it is entirely possible that the deceased who died overseas may have been the only person who would know all the relevant expenses eligible to be included in that cost base.

Accordingly, tax agents who have clients in this position should act quickly to advise them of their potential CGT liabilities should the above 30 June deadline not be met.

*Mark Morris is the principal of Morris and Associates, which is a specialist boutique tax practice based in Melbourne advising on a broad array of tax matters especially those impacting small to medium sized enterprises. He is co-chair of the ATO’s Digital Implementation Group and is a member of various other ATO consultative forums. Mark has more than 36 years’ experience in the tax profession and is a regular speaker and author on tax matters.

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