The Australian Tax Office (ATO) has issued two Practical Compliance Guidelines relating to the taxation of deceased estates and the disposal of the deceased’s main residence by a beneficiary of the estate.
Practical Compliance Guideline PCG 2018/4 discusses the liability that the legal personal representative (LPR) of a deceased person has in relation to the deceased’s outstanding tax liabilities, including:
- amounts owing to the ATO by the deceased at the time of their death, including liabilities from income tax returns that had been lodged prior to death but no notice of assessment had been issued at the time of death
- liabilities arising from outstanding income tax returns that had not been lodged by the deceased, including for the period up to the date of death
- when the ATO has decided to review the affairs of the deceased estate, any liabilities that arise from that review
The LPR is able to pay any outstanding tax liabilities out of the deceased’s assets. However, they may be personally liable where they have distributed the deceased’s assets and are on notice of a claim by the ATO.
Practical Compliance Guideline PCG 2018/D6 outlines the factors the ATO considers when deciding whether to extend the two year period in which a beneficiary is able to dispose of the deceased’s main residence without incurring capital gains tax. The draft Guideline also outlines a safe harbour compliance approach that allows a beneficiary to self-assess whether they are eligible for an extension to the two-year period. If a beneficiary satisfies all the conditions outlined in the draft Guideline, the ATO will allow the beneficiary up to 12 additional months to sell the property. The safe harbour conditions include:
- the beneficiary has spent more than 12 months of the first two years of ownership addressing one or more of the following:
- challenges to their ownership or the deceased’s will
- a life or equitable interest has delayed the disposal of the property
- the administration of the estate was delayed due to the complexity of the estate, or
- settlement of the property is delayed or falls through for reasons outside the beneficiary’s control
- the dwelling was listed for sale as soon as possible after the above circumstances were resolved
- the sale of the dwelling was completed within six months of being listed for sale
- the additional period of time needed to dispose of the property must be no longer than 12 months after the initial two years
Comments on PCG 2018/D6 are due by 21 September 2018.
Australian Taxation Office: Practical Compliance Guideline PCG 2018/4 Income tax - liability of a legal personal representative of a deceased person, 22 August 2018
Australian Taxation Office: Practical Compliance Guideline PCG 2018/D6 The Commissioner’s discretion to extend the two year period to dispose of dwellings acquired from a deceased estate, 22 August 2018