CGT Options

Discussion in 'Accounting & Tax' started by newbie70, 1st Jul, 2018.

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  1. newbie70

    newbie70 Active Member

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    Hi all,

    I'll tell the story.

    Parents purchased a place for myself and my wife to live back in 1991.
    Paid $43000, spent $12000 on renovations. We moved out after 10 years and since the place has been used by relatives, grandkids etc as a halfway house etc.

    My Parents have been pensioners during this time and some casual work for a couple of years for my Mum. They have claimed deductions for maybe 3 years of the past 27 and have only received actual rent for about 18 months during that time. They also lived in the place for about 12 months when they were moving between PPOR's.

    What options do they have to minimise any CGT payable or Maximise the equity. Bearing in mind they now fully rely on the pension for income. Options can incude seperation and property settlement etc.

    The property is worth about $700k now. They do have a PPOR that is fully owned.

    Thanks.
     
  2. newbie70

    newbie70 Active Member

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    PS: Any future impications when they pass on and the Investment property is left to one of the children?

    Thanks
     
  3. Terry_w

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

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    Who is the legal owner?
     
  4. newbie70

    newbie70 Active Member

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    My parents own both properties.
     
  5. Terry_w

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

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    not much they can do.

    Are you suggesting they 'separate' to get some sort of tax benefit? That is a drastic step yet wouldn't really save them anything.

    How come they have claimed expenses longer than they received rent?

    There was a lot they could have done, but the horse has bolted.
     
  6. Marg4000

    Marg4000 Well-Known Member

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    Is it feasible for them to sell the PPOR and move into the IP?
    That will delay and lessen future cgt on the IP.
    Marg
     
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  7. newbie70

    newbie70 Active Member

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    Thats what the property settlement was trying to acheive as currently the value of the investment property is going up and it will have implications on the pension at next valuation.

    The properties are virtually across the road from each other.

    Yes they could have structured things differently, but they purchased the property to house myself and my wife after the earthqualke in Newcastle destroyed the place we were renting ans finding another rental was impossible. They never intended for or could have imagined it would increase in value.
     
  8. Trainee

    Trainee Well-Known Member

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    You realise CGT is only payable if there are gains, and pension is only reduced if the property is worth something?
     
  9. Terry_w

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

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    The tax shouldn't hurt as much in that case!
     
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  10. Mike A

    Mike A Well-Known Member

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    I think the main concern is the potential reduction or even loss of the pension for a period of time.
     
  11. Trainee

    Trainee Well-Known Member

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    They could sell the place and put it into a term deposit?
     
  12. Mike A

    Mike A Well-Known Member

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    Not giving any financial advice here but that would be considered as part of the assets test. Wouldnt help.

    The pathetic interest rate one earns on term deposits these days may well be less than the pension lost.
     
  13. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    I'm going to go out on a limb here.

    The easiest way for them to minimise their CGT bill is for you and your wife to pay some of it for them in return for living in it rent free for 10 years.

    That is probably a bit harsh and judgemental but if you had been renting in Newcastle and paying rent then it was a very generous offer of your parents to buy a place and let you live there rent free for 10yrs. I would say that now is the time to pay some of that generosity back.

    Is the issue the amount of CGT they need to pay? Surely this is a good thing as the property has grown in value by around $300k
    Or is the issue the impact on their pension by selling the asset? This is a whole other question and nothing to do with minimising CGT.

    Those with actual accounting knowledge might be able to educate you on the possibility of your parents selling the house to you and your wife at under market value. I believe you'd need to pay stamp duty on the actual market value but it is allowed to sell to under market value - I just don't know which value is used for CGT.
     
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  14. Terry_w

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

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    No accounting knowledge needed for this as it is a tax question.

    Market value would be assumed for both stamp duty and CGT no matter what the transfer amount was.
     
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  15. Marg4000

    Marg4000 Well-Known Member

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    If the value if the property is the issue, it won’t make too much difference to pension assets test if they sell or retain.
    Marg
     
  16. Terry_w

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

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    It depends whether the income test or the assets test is the main cause of the pension reducing.

    If it is the income test then upon sale there will be no more income.

    If it is the assets test then there will be a large lump of cash left over on the sale. This will be an asset and could reduce the pension.

    But cash can be spent. They might buy a new car, improve the main residence, go on a holiday etc
     
  17. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I bet they dont have records of the substantial 3rd element CGT costs they should have kept for most of the years. eg all the expenses that they never claimed deductions for would reduce the CGT as well as possible exempt period/s (??? maybe). That alone could represent a bit of a tax reduction.

    Aged care advice re assets and incomes tests is also needed. Gifting should be avoided (eg undermarket sale or less than 100% consideration sales) as thats a Centrelink nail straight away for 5+ years

    $700K of assets beyond their own home will impact pensions. Cant be gifted or spent to a level it wont impact. Deeming also may be a pension killer as Centrelink apply a deeming rate rather than athe palty TD rate itself. Isnt the correct issue about planning retirement ?

    One solution could be you buy it at market and build a duplex or home + GF and give them GF rights as this may address the assets test and income test in one go. We have seen a few seek this advice through aged care services in the past few years. Centrelink have a GF concession that can fit the problem (sometimes). This strategy would mean they sell both properties to fund a dwelling on your new site.
     
  18. Terry_w

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

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    I think relevant only for properties purchase after 1991.
     
  19. Terry_w

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

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    You can't include these 3rd element costs if you acquired the asset before 21 August 1991 so there may be a chance.
     
  20. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Yes - For a contracted acquisition AFTER 20th August 1991 (Budget night that year). A great example of when I would be very carefully checking the contract and settlement dates etc. OP says "1991"...when ?