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CGT on property infrequently rented.

Discussion in 'Accounting & Tax' started by Liam Blanden, 7th Feb, 2016.

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  1. Liam Blanden

    Liam Blanden Well-Known Member

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    Hey guys.

    Just wanting to pick your brains with regards to CGT exemptions.

    My Gf's parents have owned the house we live in since 2000 and in that time it has been rented for periods of 6 months to 2 years on and off. Most of the time they have used the house as a place to stay when they work in the city as they live in the country. As well as this, both of their daughters have used the house during university and paid no rent.

    I have lived here now for 2 years and paid rent for 1 year (on the books) and others in the past have paid rent here at various times, but never for a substantial period.

    Is there any exemptions they could claim as the house has been used as a home away from home for 85% of the time its been owned and had rent collected for the other 15%?

    Cheers in advance.
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    Do they have their own PPOR in the country? You can't claim more than one PPOR. And only PPOR's can be CGT exempt or partially exempt.

    If they're renting in the country, they could potentially argue that they lived in it for the periods in between others.
     
  3. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    Sounds like a lot of third element costs can be added to the cost base which would reduce the capita gain
     
  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The cost base issues for the property may also be affected if the property was previously the parents main residence. Some third element costs base items may be excluded if that's the case. Third element cost base items include costs of ownership for which a deduction hasn't been claimed eg rates, maintenance, loan interest etc.

    CGT on property doesn't have any requirements relating to earning rental income. The position is better thought of that all property is subject to CGT unless it is exempt. As owners unless they occupy the property they cant claim a main residence exemption, rendering the calculated capital gain subject to tax. They may be able to influence the cost base using other rules.

    Staying from time to time does not meet the definition of residing. Residing means it should be the place where they live. Not merely stay. And only one property may be exempt at any one time usually.
     
    Last edited: 8th Feb, 2016
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  5. Liam Blanden

    Liam Blanden Well-Known Member

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    Yeah cheers guys.

    Just had a look at third element amendments to cost base. As it wasn't the owners PPOR so much as it was their children's ppor i guess were stuck.

    Thanks for your time tho :D
     
  6. Nemo30

    Nemo30 Well-Known Member

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    What are you/parents in law thinking of doing with the property?
     
  7. Liam Blanden

    Liam Blanden Well-Known Member

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    selling it to either me or the boyfriend of the other sister, althou my savings are looking like they are going to fall short :/
     
  8. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The kids cant have a main residence for something they don't own. They are just occupiers. Are you saying the kids paid for the rates etc which is why there are no / limited third element costs ?
     
  9. Nemo30

    Nemo30 Well-Known Member

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    Not sure if this is legal and no idea how much cgt is..

    But could you and gf buy prop at a lower amount using the difference between purchase price and market value as deposit ie no money down.. (stamp duty and cgt calculated on market value). You refinance in a few months and pay proportion of cgt to inlaws. No idea if numbers work.
     
  10. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Nemo not sure what that means but seems like you aren't paying for the asset. OSR stamp duty based on market value and require a valuation if parties are related. Nobody cares how or when the settlement is paid for. That a matter between the parties (and their legal advisers !!). Obviously for seller there are risks title could be given to a buyer who wont then pay. But a property can be sold with a future dated promise to pay. Its just a big risk and may be hard to find lawyers who would assist.

    Note that the buyer will / may have a CGT issue when the contract is made. NOT when its all paid. You can based CGT on when you get the proceeds. So if you promise to pay in 5 years time someone will need to find the tax $. So a timing difference on receipt of funds could pose a cashflow problem.

    There is also a vendor asset risk here. You and the GF bust up and don't pay AND she takes you to cleaners and next thing she owns it all.

    Its highly unlikely someone would transfer title from a promise to pay oneday but in the interim you pay the costs and taxes only. A related party loan will arouse lender curiosity and may affect approval if you are ballooning due to lack of cash.

    Vendor finance is a way to address being short. Many vendors wont touch it but a related family might.
     
  11. Nemo30

    Nemo30 Well-Known Member

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    I think you misunderstood what I meant.

    I actually meant settle the property and pay an agreed price, just much lower than market. The reason I said Liam and gf, was because would need the family relationship.
    As an example.. Property is worth $500k, Liam and gf buy it for $400k. Bank uses the favourable family purchase and uses the market value as the value and says Liam and gf are buying at 80%... No deposit or lmi needed. ( I have done this with my mum, so I know it's possible).

    Gf's parents bought the property for $300k in 2000 (unlikely, but still..). So cg of $200k, less 50% discount. $100k added to income. They may be retired and therefore cgt might be $30k.

    6 months after buying prop, gf's parents do tax return and cgt payable. Liam and gf refinance prop to 90% and pay the cgt bill.

    Something like that anyway.
     
  12. neK

    neK Well-Known Member

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    I'm sure banks will only lend on the sale amount.
     
  13. Nemo30

    Nemo30 Well-Known Member

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    I did that exact scenario.. It can be done.... At least it used to be able to. Not sure what changes have been brought in since I did it.

    Just thinking of different options - no idea if Liam's numbers work or whether parents would sell for less.
     
    Last edited: 9th Feb, 2016
  14. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    OK. No issues really other than Bank and OSR and ATO will use the market value for loan, duty and CGT respectively. (market value is substituted for actual contract where its non- arms length pricing) Just bear in mind if the property is sold under market the issue could have a Centrelink gifting issue for former owners too.