CGT and Estate property

Discussion in 'Wills & Estate Planning' started by Anthony416, 1st Apr, 2020.

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  1. Anthony416

    Anthony416 Well-Known Member

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    Hoping for some guidance on this, I am the executor of my parent's estate and I was looking at putting the property on the market, however in this current situation it may be that the property will not be sold within the 2 year period allowed by the rules.

    So I wanted to know how to calculate the implications of sale at a reduced price Vs holding and potentially paying CGT.

    The property is a 3 bedroom house that was purchased new about 25 years ago for around $200k, the valuations now came in at around $615k - $645k.

    If the property did not sell then I would look at renting it out (after this period of no evictions etc is no longer in play and things go back to normal).

    The proceeds of the sale of the property would be split evenly among the 3 sons.

    Also, is there any talk of extending the 2 year grace period due to this crisis situation?

    Are there any other significant tax considerations in addition to the main CGT one?
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    does the will allow?
    Was it the main residence of the last owner or investment?
    will it be sold by the executor of a beneficiary?
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    If the main residence, generally exempt if sold by the executors or beneficiaries within 2 years of the death
    see PCG 2019/5 for guidance on when the commissioner will extend the 2 year rule.
     
  4. Anthony416

    Anthony416 Well-Known Member

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    Thank you Terry,
    The will allows for the estate to be divided among the 3 sons
    The property was the main residence of the last owner
    I am the executor and a beneficiary (the property is currently in my name)
     
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  5. Trainee

    Trainee Well-Known Member

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    Wait, what? That last bit.
     
  6. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    I would think it is pure speculation as to the need to extend the date. And like all CV issues it will be what it is. ScoMo summed it up pretty well when he said all of us must be prepared to do some heavy lifting for a while and someone (all of us excepting low paid) will likely need to pay and do our share.

    I'm also going to present the other view. Selling after 2 years is so you want more gain (based on the market value at death) tax free instead of none now ?

    Remember too that if sold after 2 years some costs will reduce the gain eg selling costs, legals etc. And in the interim if any non-deductible enhancements to assist tenancy occur these add to the costbase too. And only 50% is then taxable. And shared 1/3rds. Cant imagine its a huge number and if it is it reflects good price gorwth for the period apporprtioned after 2 years. Based on all that cant imagine its substantial
     
    Last edited: 1st Apr, 2020
  7. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Thats perfectly OK. Many wait until the estate is discharged but the trustee should be the legal owner after probate is granted. In either case OSR will seek the will and apply the duty concession one or even twice..
     
    Last edited: 1st Apr, 2020
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Executor takes title
     
  9. Anthony416

    Anthony416 Well-Known Member

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    1) Yes at this stage it is pure speculation.
    2) There was no deliberate reasoning behind not acting in the first year apart from the trauma of the sudden loss of a parent.
     
    Last edited: 1st Apr, 2020
  10. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    I often encounter the - Should we keep it question too. Often based on a (irrational?) emotional attachment to a parents home. After all it has ceased being that and now its going to have tenants who couldnt care less about the door jamb where all your heights once were marked.

    I always suggest that they actually ask each other...

    1. Would we all want and choose to buy a jointly owned investment and manage it together ?
    2. If you took your share could you do something more personal and productive individually as a lasting legacy from the estate ?
    I dont think I have seen too many m

    Saintain their initial view to keep it. Sometimes one may and buy the others out.
    Siblings (and their partners opinions !!) can be aweful partners
     
  11. Anthony416

    Anthony416 Well-Known Member

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    Thank you for the feedback, I have done a bit more research and if I understand correctly;
    1) During the period the owner was living there as their principal residence the original bought price and current price until time of death has no bearing on CGT.
    2) When the owner passes then the property is assigned a value on that date, say for example $640k.
    3) If the property is sold for whatever amount within the 2 year period, no CGT
    4) If the property is sold say in year 3 for $670k them CGT is payable on $30k minus any capital costs to improve the property for sale.
    5) If the property is sold in year 3 for $635k then no CGT is payable.

    How many of the above did I get right?
     
    Last edited: 1st Apr, 2020
  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    That's correct basically
     
  13. Trainee

    Trainee Well-Known Member

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    Which taxpayer pays tax on the cg, if any?
     
  14. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    It depends who sells it. The estate or the beneficiary.
     
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  15. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    And allow for selling costs. The estate can't use the loss? Beneficiaries could