Are You Liable for Capital Gains Tax on a Windfall?

Have you recently taken advantage of a windfall in the form of some property? The word "windfall" refers to an unexpected and usually financial benefit, but it's not always as it may seem. You may have mixed emotions, especially if this gain was associated with a loved one's passing, but you also need to take into account some new obligations associated with this sum of money. Do you need to account for capital gains tax and if so, what is involved?

Taxable Status

Much will depend on your legal status as a taxable person in Australia. If you are like the vast majority of people and liable to pay tax to the ATO, then this is good news as any property that is bequeathed to a beneficiary under these circumstances is free of capital gains tax. As long as you can prove that you are legally entitled to this windfall due to having been named in the will, then you are free to use the asset as you see fit. However, if you're a foreign resident then you will need to seek further advice on the matter.

Converting into Cash

Having said that, you may decide that you're going to dispose of the property so that you can convert its value into cash. In this case, the ATO will want to know if the asset in question has been used for income-producing reasons in the past. Sometimes, the departed individual will have used the property for rental purposes and if that's the case, it may be treated differently by the tax authorities.

Principle Residence

If, on the other hand, it was the principle residence of the deceased person and was classed as a "dwelling," then you may be exempt if you sell the property within a couple of years. The rules also suggest that if the building was sold during the process of executing the estate, capital gains tax would be due in this case.

Reviewing All the Options

As you can see, the situation is never straightforward and can be somewhat confusing. Thus, it's important to clarify your position before you do anything else and you should get in touch with a local tax agent before you make any huge decisions. If this gift is to be treated as a real windfall, then you need to make sure that you don't have any outstanding tax liability or other complications.

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