“Dad bought the investment property in 1970, so it qualifies for the Pre-1985 property CGT exemption… right?”
It’s one of the most common—and costly—misunderstandings we hear.
Many Australian families own investment properties purchased before 20 September 1985, when Capital Gains Tax (CGT) was introduced. These pre-CGT assets can provide significant tax advantages during the owner’s lifetime.
However, those advantages don’t always continue after death or when ownership changes.
As your trusted local accountant serving Inner West Sydney, Ashfield, Belrose, and the Northern Beaches, we’ve helped many families navigate inherited property, estate planning, and the Pre-1985 property CGT exemption. Understanding these rules before you transfer or sell a property could save your family thousands of dollars in unnecessary Capital Gains Tax.
What Is a Pre-CGT Property?
Any property acquired before 20 September 1985 is generally a pre-CGT asset.
Provided ownership remains with the original owner, any capital gain on disposal is generally exempt from CGT.
That sounds simple—but things become more complex when the property changes hands.
Scenario 1 – Husband and Wife Own a Pre-1985 Rental Property
Let’s look at a common example.
- Husband (A) and Wife (B) purchase a rental property in 1970.
- They each own 50%.
- The property has increased substantially in value.
While both remain alive and continue owning the property, it generally retains its pre-CGT status.
If they sell it during their lifetime, the capital gain is generally exempt from CGT.
Scenario 2 – A Dies and Leaves Their Share to B
Suppose A passes away first and leaves A’s interest to B.
Depending on the estate and ownership structure, Division 128 of the Income Tax Assessment Act 1997 applies to determine the CGT consequences.
The property may continue to enjoy favourable tax treatment while B remains the owner. However, the tax outcome following B’s eventual death or a later sale requires careful consideration.
This is why professional advice during estate administration is essential.
Scenario 3 – Both Parents Die, and the Children Inherit the Property
Now assume:
- A dies.
- Later, B dies.
- The children inherit the entire rental property.
- The children decide to sell several years later.
Many families assume the property remains completely CGT-free because it was originally purchased before 1985.
Unfortunately, the legislation is more complex.
For beneficiaries inheriting a pre-CGT property, the tax law generally applies a market value cost base at the deceased’s date of death rather than allowing the original 1970 purchase price or pre-CGT status to continue indefinitely.
The eventual taxable capital gain, therefore, depends on:
- the property’s market value when each deceased owner passed away;
- how ownership was structured;
- whether the beneficiaries qualify for the CGT discount; and
- several other factors under the deceased estate provisions.
Example
Assume:
- Purchased in 1970.
- Market value when the surviving spouse dies = $2.2 million.
- Children later sell for $2.7 million.
Rather than calculating CGT from the original purchase in 1970, the cost base may instead be determined using the market value rules applying on the relevant date of death.
This can dramatically reduce the taxable gain compared with using the original purchase price, but it does not necessarily eliminate CGT.
What If Mum and Dad Transfer the Property into a Family Trust While They’re Still Alive?
This question has become increasingly popular.
Many people believe they can “lock in” the pre-1985 exemption by transferring the property into a discretionary family trust.
In most cases, this is not correct.
If A and B transfer the property to a family trust while they are alive:
- The transfer is generally a CGT event;
- because the property is a pre-CGT asset, the transfer itself may not trigger CGT for A and B;
- However, the trust generally acquires the property at its market value at the transfer date;
- The original pre-CGT status generally does not continue within the trust.
This means any future increase in value while the trust owns the property may become subject to CGT when the trust disposes of it.
Don’t Forget Stamp Duty
Many property owners focus only on the capital gains tax.
However, transferring property into a family trust while alive can also trigger stamp duty, which is administered under State and Territory legislation.
For high-value Sydney properties, stamp duty can represent a high cost and should always be considered before restructuring ownership.
Is a Family Trust Still Worth Considering?
Absolutely—but not necessarily because of the pre-1985 exemption.
A family trust may still provide benefits such as:
- asset protection;
- flexible income distributions (subject to tax rules);
- succession planning;
- intergenerational wealth management; and
- Greater control over family investments.
The decision should always consider both tax and commercial objectives.
Every Family’s Situation Is Different
No two estates are identical.
The tax outcome can vary depending on:
- joint tenancy or tenants in common;
- whether the property was a main residence or investment property;
- improvements made after 1985;
- testamentary trust provisions;
- family trust structures;
- market values at the date of death;
- and the wording of the Will.
Small differences in ownership or estate planning can significantly affect the final tax outcome.
FAQ: Where Can I Find Tax Accountants Experienced in Capital Gains Tax Reporting?
If you’re buying, selling, or transferring property, it’s important to work with tax accountants who have experience in capital gains tax (CGT) reporting. CGT rules can become complex, especially if your situation involves an investment property, inherited assets, a family trust, the main residence exemption, or the 6-year rule CGT. Getting professional advice early can help you avoid costly mistakes and ensure you claim any concessions or exemptions you’re entitled to.
EndureGo Tax has experienced tax accountants who assist individuals, property investors, and business owners with capital gains tax reporting across Australia. We can help you calculate your capital gain or loss, determine whether any CGT exemptions or discounts apply, prepare accurate tax returns, and provide strategic advice before you sell or transfer an asset.
Whether you’re selling an investment property, disposing of shares, or planning a property transfer, EndureGo Tax offers practical, personalised guidance to help you stay compliant with ATO requirements while achieving the best possible tax outcome.
Speak With Your Trusted Local Accountant Before Making a Decision
Inherited property is one of the most valuable assets that many Australian families will ever receive.
Before transferring ownership, establishing a family trust, or signing a contract of sale, obtain professional advice.
At Endurego Tax, your trusted local accountant in Inner West Sydney, Ashfield, and Belrose, Northern Beaches, we assist clients with:
- Capital Gains Tax planning
- Pre-CGT property advice
- Deceased estate taxation
- Family trust structures
- Testamentary trust planning
- Property investment taxation
- ATO advice and compliance
- Tax-effective succession planning
One conversation before a property transfer can prevent costly mistakes and potentially save your family substantial taxes.
If you’ve inherited a pre-1985 property and want to know whether the Pre-1985 property CGT exemption applies, or you’re considering transferring property into a family trust, contact Endurego Tax today. We’ll help you understand your tax obligations and options before you make an irreversible decision.
