Deceased estates and estate beneficiaries
Where a dwelling (or an ownership interest in a dwelling) passes to a legal personal representative (‘LPR’) or an individual beneficiary of a deceased estate following the death of an individual, special rules apply, where applicable, to allow a full or partial MRE when the dwelling (or an ownership interest in it) is eventually disposed of by the LPR or beneficiary.
Amendments were also made to these special rules to ensure the restriction imposed on foreign residents in relation to the application of the MRE is also reflected in the rules applying to deceased estates and estate beneficiaries. Consequently, the rules will apply differently depending on whether or not the deceased and/or the estate beneficiary was a foreign resident.
Deceased not an excluded foreign resident at death
If, at the time of death, the deceased was either a resident of Australia or was a foreign resident for six years or less (i.e., they are not an excluded foreign resident), then the MRE accrued by the deceased for the dwelling continues to be available to the trustee or beneficiary (or beneficiaries) of the deceased estate who are bequeathed the dwelling. Refer to S.118-195(1)(c).
Specifically, the MRE will be attributable to the following periods:
- the period during which the deceased person used the dwelling as their main residence during their lifetime.
- the period that occurs within two years of the deceased’s death (or within such longer period as allowed by the Commissioner); and
- the period following the deceased’s death where the dwelling was the main residence of an individual (regardless of their residency status):
- who was the spouse of the deceased immediately before their death; and/or
- who had a right to occupy the dwelling under the deceased’s Will.
A beneficiary who inherited the dwelling can generally also include the period they occupied the dwelling as their main residence after the deceased’s death. However, if that beneficiary is an excluded foreign resident at the time the CGT event happens to the dwelling (e.g., the beneficiary subsequently sells the dwelling), the beneficiary is denied any additional component of the MRE that they accrued in their own right. Refer to S.118-195(1A)(b).