All Topics / Legal & Accounting / Capital Gains Tax and exemption

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  • Profile photo of kaleidoscopesskaleidoscopess
    Member
    @kaleidoscopess
    Join Date: 2009
    Post Count: 15

    Hi All

    My parents own a property that was purchased pre-CGT and has always been their PPOR

    We are consdiering adding my name to be transferred onto the title of this property (as only 1% ownership and also my PPOR) and they remain 99% on the title.

    What if we sell the property – what would be the CGT implications etc? Would I have to pay a CGT on my 1% ownership on the property based upon the value at which the property was valued when my name was transferred onto the title and the price for which it sold? Would I affect my parents' CGT exemption? Or would the remaining 99% remain CGT free?

    Further, what if me decide to demolish the existing house and build a new house and then sell? What CGT or any other tax implications would I/we incur?

    Any help would be much appreciated.

    Also, I'm searching for a tax accountant in Sydney's inner west that's up to scratch on property related tax. Any tips would be great!

    Thanks

    Profile photo of FletcherTaxFletcherTax
    Member
    @fletchertax
    Join Date: 2009
    Post Count: 31

    What would be the point of doing this restructure?

    The property is dually CGT exempt as it is Pre CGT and your parents' PPOR in its current state.

    Changing titles is a change of ownership hence causing a capital gains event and loosing the pre-CGT status going forward.

    Fletcher Tax Accountants
    http://www.fletchertaxaccountants.com.au

    Please note comments made should NOT be taken as specific taxation, financial, legal or investment advice. Please seek professional, specific advice.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Demolishing and constructing on the land may also mean the lose of the pre-CGT status as it will be new property. So you had better check this too.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of kaleidoscopesskaleidoscopess
    Member
    @kaleidoscopess
    Join Date: 2009
    Post Count: 15

    Hi all

    Thanks for the comments

    the point of this is to obtain finance. Parents no longer work, therefore no way to get finance to construct.

    Big four banks are preferring applicants as opposed to guarantors, plus only 50% of the income of guarantors can be commited to the construction loan

    Therefore, only way for a bank to be comfortable (and even then some are saying that all applicants should have an equal share in the title) is to be on the title and therefore have a registered interest – and cheapest way to do this is via having a 1% ownership in the property

    I am getting conflicting advice regarding the tax implications. The ATO said, that as long as it has always been parents' PPOR and post construction the house is used for a minimum 3 months as a PPOR, then the whole process/transcation/capital gain event will not incur CGT. The ATO said this to me via phone on 3 separate occasions by 3 separate pople.

    They even said, that although the title is changed [Yes, capital gain event] (via adding the children as 1% shares), us (children) have always lived in the house and still live in the house to this day. Post construction we will all (as a family) intend to live in it for a minimum 3 months or more to qualify for CGT exemption, and therefore, if everything I am saying is correct, than upon selling the house, there will be no CPT applicable, given it has always been the PPOR of the parents (pre-title change) and was the PPOR of the children (post title change) during the time that they were on the title. Also, it is not feasible that we live on the land during construction, however I understand the ATO has exceptions for this given people obviously cannot live on a property whilst the house is being built.

    The ATO said that although I am demolishing and constructing, this would not affect the pre-CGT given the house has always been PPOR and, given its state of dis-repair, a new house would not affect CGT.

    My problem is, this ATO advice conflicts with the advice I have gotten from 2 different accountants in Sydney, although one other accountant did say something very similar to the ATO

    So, my problem is that I still can't find a good accountant – a part from calling Yellow Pages and speaking to them and then getting mixed responses – which just makes me confused as to who is correct or not?

    I am considering a private ruling ….

    Any advice people??

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Hi K

    What the ATO said Sounds reasonable. Maybe you should apply for a private ruling?

    I think what you need is a tax lawyer as interpretation of legislation is needed.  Even if the advice costs a bit it may be worth it. Get the advice in writing and rely on it, if it is incorrect you may have a claim against them. Being extra cautious you could apply for the private ruling.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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