NEWS

If you’ve recently inherited a family home or expect to at some point, you may be wondering what happens next, especially when it comes to tax.

The Australian Taxation Office (ATO) has recently released new draft guidance that looks at how inherited homes are treated for capital gains tax (CGT). While some headlines have made this sound alarming, the reality is more about understanding the rules and making informed decisions.

Let’s walk through it in simple terms.

Why This Matters

In many cases, when a family home is passed on after someone passes away, it can be sold without paying capital gains tax. This is often a significant benefit, particularly if the home has increased in value over many years.

However, to qualify for this exemption, there are generally two main options:

• Sell the home within two years of the date of death, or
• ensure the home is lived in by an eligible person (such as a spouse or beneficiary) until it is sold

This is where the ATO’s new guidance becomes important.

What Has Changed?

The ATO is now taking a closer look at who is allowed to live in the home if you want to keep that tax-free status.

Their view is quite specific:

• The right to live in the home must be clearly written in the will
• It must be given to a specific, named person

What doesn’t count:

• Informal arrangements between family members
• A trustee or executor simply allowing someone to stay there
• General wording in a will that leaves decisions “up to the executor”

In short, if the will doesn’t clearly state who has the right to live in the home, the tax exemption may not apply.

Why This Could Be Important

If the exemption doesn’t apply, capital gains tax could be payable when the property is eventually sold.

For example, if a home has increased significantly in value over time, the tax bill could be substantial.

That’s why getting the details right, both in the will and in how the estate is managed, is so important.

What You Can Do Now

The good news is there are practical steps you can take to protect your family’s position:

1. Review your will

If you want someone to continue living in your home after you pass away, make sure this is clearly stated in your will, including naming the person.

2. Be mindful of timing

If you inherit a property, selling it within two years may help you avoid capital gains tax.
If you plan to keep it longer, it’s worth understanding the potential tax implications first.

3. Get advice early

Estate matters can become complicated quickly. A conversation with your accountant or adviser can help you avoid costly mistakes.

4. Consider the bigger picture

Tax is important but so are family needs, emotions, and timing. The right decision is often a balance of all these factors.

A Final Thought

Managing an estate is not just about paperwork, it’s about protecting what someone has worked hard to build and passing it on as smoothly as possible.

The rules can be complex, but with the right planning and guidance, you can make confident decisions and avoid unnecessary stress.

If you’re unsure how these changes might affect you or your family, it’s worth having a conversation with us sooner rather than later.