In the following scenario is it possible to avoid/reduce capital gains tax?
Property purchased in 1997 for $90,000.
Privately rented for 10 years.
The owner has given us the property but is not deceased (inheritance)
We want to transfer the title to our name (my wife and I).
Property now worth $400,000
Property is currently rented out.
Once the title is transferred I would like to know what my inherited tax bill is (CGT, Stamp Duty etc)Regards,
Jim…
No, I do not think it will : -( I think it takes more in order to reduce the actually capital gain tax.
Fat Loss 4 IdiotsAt death CGT is generally disregarded, s 128-10 ITAA.
You, the beneficiary, will pay CGT when you sell with the cost base being the value that would have been the cost base to the deceased if the deased had disposed of the assets at the date of death, ss109-55 and 128-15 ITAA.
What this means is, i thnk, you will stand in the shoes of the deceased and the CG will be as if you purchased the property when they did. So the beneficary wears the whole CG when they sell it. ie if the person leaves it to you, it will be as if you had bought in in 1997 for $90,000. When you sell you will pay CGT based on this amount.
If the person were to transfer the property to you now they would be up for CGT. So it would be better for you if you received it now as a transfer as your cost based will be $400,000. But the person's estate would suffer because CGT would be payable now.
That is my brief understanding of CGT issues at death. it may be wrong.
You should really seek legal advice now because it is a complex area and there could be some substantial savings, depending on what you want to do with the property. eg. you could get the person to leave the property via a testamentary trust, and this could save you a fortune in income tax over the coming years.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thank you very much for the comprehensive answer… I think I need to speak someone regarding this issue. It could save me a few thousand.
Thanks again…
Hi Jim
A gift is considered as selling the property even though the person giving you the property has not received any proceeds. The capital proceeds for the owner will be the market value of the property ($400,000). In this case, the owner will be liable for CGT, once the property is transferred into your name. The owner's CGT will be $400,000 – ($90,000+any capital expenses). The owner will also recieve the 50% CGT discount since it was held for more than 12 months.
There is no capital gains tax for you. You will only pay CGT when you do eventually sell the property. The cost base (the amount you are deemed to have bought the property for) is $400,000. For example, if you continue to rent out the property and in 2 years you sold the property for $500,000, you will be liable for a CGT on $50,000 ($100,000 less the 50% CGT discount , since you held the property for more than 12 months). If, on the other hand, you live in the property once the property is transferred to your name (that is, it becomes your main residence) and you sell it , there is no CGT (regardless of when you sell it).
In summary:
There is no CGT payable by you when the property is transferred to your name.Thankyou for your reply… a very helpful response.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
