All Topics / Help Needed! / A question regarding some inherited properties

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  • Profile photo of reecereece
    Participant
    @johnreece
    Join Date: 2015
    Post Count: 7

    I have a question regarding some inherited properties. My father has recently left me (his only son) three properties in his will.

    1. His home (PPOR) bought for $800k and now worth $950k
    2. An investment property bought for $400k and now worth $650k
    3. An investment property bought for $750k and now worth only $500k (he bought a house in Moranbah-a mining town- at the peak of the mining boom).

    Each of the properties were purchased less than 10 years ago and he has owned them for more than 2 years.

    What are the capital gain implications if I want to sell some (or all) of the properties?

    Thanks in advance

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    1. Exempt from CGT if sold within 2 years. Thereafter if you rent it the cost base will be the value at death.
    2. Cost base will be his cost base.
    3. cost base will be his cost base.

    Confirm this with your tax advisor as I have made a few assumptions.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of reecereece
    Participant
    @johnreece
    Join Date: 2015
    Post Count: 7

    Thanks Terry for your answer.

    As I am a little bit dumb, can you clarify that;

    2. “Cost base will be his cost base” means that I will be taxed on the difference between my fathers purchase price and the current sale value (if, or when, I sell it).

    So in summary, the transfer of the property to me does NOT reset the Capital Gain clock to zero ?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    the cost base is basically what you pay for a property plus the costs you haven’t claimed – stamp duty etc.

    When you inherit a property you generally inherit the cost base of the deceased. So it is as if you are them. What they paid for the property, their stamp duty etc is what you are considered to have paid for it.

    The clock only sets to zero if it was the main residence at death.

    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 DeanCollinsDeanCollins
    Participant
    @deancollins
    Join Date: 2015
    Post Count: 376

    The clock only sets to zero if it was the main residence at death.

    Interesting because in the USA cost base is zero as of death date….though we have inheritance tax if sum is large enough.

    Heres the relevant ATO inheritance and capital gains page

    https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Gifts,-inheritances-and-deceased-estates/Inheriting-a-dwelling/?page=3

    Its ridiculous though….how would someone inheriting a property be able to determine TCB…..

    especially this section

    Example

    Continuing main residence status

    Aldo bought a house in March 1995 and lived in it. He moved into a nursing home in December 2010 and left the house vacant. He chose to treat the house as his main residence after he ceased living in it, under the continuing main residence status after dwelling ceases to be your main residence rule.

    Aldo died in February 2015 and the house passed to his beneficiary, Con, who uses the house as a rental property.

    As the house was Aldo’s main residence immediately before his death and was not being used to produce income at that time, Con can obtain a full exemption for the period Aldo owned it.

    If Con rents out the house and sells it more than two years after Aldo’s death, the capital gain for the period from the date of Aldo’s death until Con sells it is taxable.

    If Con sells the house within two years of Aldo’s death, he can ignore the main residence days and total days between Aldo’s death and him selling it, which would give him exemption for this period.

    If Aldo had rented out the house after he stopped living in it he could still have chosen to treat it as his main residence under the ‘continuing main residence status after dwelling ceases to be your main residence’ rule. The house would be considered to have been his main residence until his death because he would have rented it out for less than six years.

    If this choice had been made, Con would get an exemption for the period Aldo owned the house.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    This is why careful record keeping is essential, and this is even more important for when you die because the executor and/or beneficiaries need to find this information.

    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 reecereece
    Participant
    @johnreece
    Join Date: 2015
    Post Count: 7

    When you inherit a property you generally inherit the cost base of the deceased. So it is as if you are them. What they paid for the property, their stamp duty etc is what you are considered to have paid for it.
    The clock only sets to zero if it was the main residence at death.

    Thanks again for your advice Terry.

    Can you please advise why I have been told to get a valuation for each of the properties. I can understand why I need one for the PPOR but not sure why I need one for the other two since the initial purchase price is the important number

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    I don’t know – you will have to ask the person that advised you. If they think you do need a valuation ask them for the legislation which requires this.

    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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