Forums / Getting Technical / Legal & Accounting / Capital Gains question

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  • Profile photo of ChrisChris
    Participant
    @critta41
    Join Date: 2015
    Post Count: 2

    Hi,

    This is a bit tricky. Mum and dad bought the family home in 1975. They lived in it until 2000 when they split it down the middle and made two units out of the one house. Both units were rented out until mum and dad returned to live in the 2nd unit in 2004 where they have lived until now.
    If they were to sell both units would they be required to pay any capital gains on either unit?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    It would have been pre CGT, but subdivision would change this. It probably could be sold and the main residence claimed if they had lived in both sides of the house, it was rented for less than 6 years, they had no other main residence which they claimed and they moved back into both sides of the house and it is on less than 2 hectares and hasn’t been used to produce income other than described.

    They need to seek specific tax advice.

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

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

    Profile photo of fishfish
    Participant
    @slipperyfish
    Join Date: 2015
    Post Count: 13

    Whilst on capital gains, I have a question in regards to the dreaded CGT.

    we sold our first home some ten years ago and with a portion of the profit we bought a block of land( not one of our better decisions). As it turned out we have had the land sit there for some time and now want to reclaim that money. Problem is, two of Australia’s biggest cyclones tore through there over the last ten years and property prices eventually collapsed, land in particular. So if we were to sell the land as is we would lose a large portion of our investment. However if we build a dwelling we may recover most of the investment upon resale.

    The question is…. If we were to build and sell, would we incur CGT on our initial investment amount which was derived from the sale of our original PPOR ?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    It would be subject to CGT because you cannot claim the main residence exemption for vacant land, unless you build within 4 years. But this doesn’t necessarily mean any tax would be payable – depends if there is a profit after costs.

    The fact that the money came from the sale of the main residence prior to this is irrelevant.

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

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

    Profile photo of fishfish
    Participant
    @slipperyfish
    Join Date: 2015
    Post Count: 13

    Thanks Terry.

    We paid outright for the land, so would that be considered part of the costs? If so I doubt I will be able to make a profit, as the land has suffered quite a loss in value.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Costs of the land, stamp duty, interest rates etc could all come off the CGs – which may make it a capital loss which may help you save tax at some future date on a capital gain.

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

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

    Profile photo of fishfish
    Participant
    @slipperyfish
    Join Date: 2015
    Post Count: 13

    Thanks Terry. Sorry for the late reply.

    Profile photo of ChrisChris
    Participant
    @critta41
    Join Date: 2015
    Post Count: 2

    Thanks Terry. Will get mum to go to the accountant.

    Profile photo of DonDon
    Participant
    @thedon
    Join Date: 2016
    Post Count: 9

    Hi
    This is an odd situation. My wife and two of her siblings with their parents are on the title of the primary residence of their parents house (which the father has just passed away) and it’s owned in equal shares. The parents paid off the mortgage: and the siblings were under the impression that they were just guarantors to the bank.
    How is this going to affect them once the mother passes away with capital Gain Taxes? Should they be removed from the title now ?
    What’s the best solution.?
    Any help would be appreciated.
    Don

    • This reply was modified 3 years, 1 month ago by Profile photo of Don Don.
    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Is it owned as Tenants in common or joint tenants?

    The siblings will be up for CGT on the transfer of their shares. Changing title now will also result in stamp duty as well as CGT. To work out the CGT payable they will need access to the records so they can use expenses paid to reduce the CGT payable.

    Whether they should transfer title now or just wait it out will depend – there are advantages in both.

    They should seek legal advice asap.

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

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

    Profile photo of DonDon
    Participant
    @thedon
    Join Date: 2016
    Post Count: 9

    Thanks Terry for responding.
    They are joint tenants.
    Regarding expenses the parents didn’t keep any receipts.

    Don

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    If one joint tenant dies the survivors share automatically increases.

    Without proof of expenses they will pay more CGT. for CGT purposes JT owners are consider owners in equal shares as tenants in common.

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

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

    Profile photo of DonDon
    Participant
    @thedon
    Join Date: 2016
    Post Count: 9

    Thanks again Terry.
    I assume that there is nothing that can be done.!
    Do they still need to seek legal advice asap.?
    Don

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,325

    Hi Don,

    I assume that there is nothing that can be done.!

    Going by this earlier comment from Terry, it seems like there may well be something that can be done:-

    Whether they should transfer title now or just wait it out will depend – there are advantages in both.
    They should seek legal advice asap.

    …but what should be done might only follow a visit to a lawyer,

    Benny

    Profile photo of DonDon
    Participant
    @thedon
    Join Date: 2016
    Post Count: 9

    Hi Benny,
    yes! you are both right.
    Thanks
    Terry can i ask you what are your consultation fees?

    Don

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Well they are the owners of the property – this can’t be undone. There may be ways to minimise future effects though.

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

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

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