EXAMPLE – Foreign resident deceased and resident beneficiary
Danny purchased a dwelling on 12 November 2002 and lived in it as his main residence from that time until 10 October 2008, when he moved to Barcelona to live (at which time he became a foreign resident for Australian tax purposes). The dwelling was rented out to tenants when Danny moved out.
On 6 April 2019, Danny passed away. He was still a foreign resident at the time of his death and as he has been a foreign resident continuously since October 2008 (i.e., for more than six years), he is an excluded foreign resident.
His daughter, Katie, inherits the dwelling from Danny and moves into it to use as her main residence on 15 June 2019. Katie continues to reside in it until she sells it. She enters into a contract to sell the dwelling on 28 October 2022, with settlement occurring on 10 December 2022. Katie is an Australia resident for tax purposes throughout this whole time.
Does Katie have access to the MRE in respect of the sale of the inherited dwelling?
Yes, a partial MRE can apply in this case.
Danny was an excluded foreign resident at the time of his death, therefore, his accrued MRE period (i.e., 12 November 2002 to 10 October 2008) does not qualify for the MRE. Furthermore, the period between Danny’s date of death and when Katie moved into the dwelling (i.e., 6 April 2019 to 14 June 2019) is also not eligible for the MRE as the two-year post-death concession does not apply.
As Katie is a resident at the time of the CGT event, the period from when she moved into the dwelling until her ownership interest in it ends (i.e., 15 June 2019 to 10 December 2022) will qualify for the MRE as main residence days in the partial MRE calculation. Moreover, Katie’s cost base for the dwelling will be the same as Danny’s cost base just before his death.