Dad died, don't want to pay CGT

Specialist question – help needed please… (and sorry for long winded story)

In 1984 my Father married his second wife and moved into a house that she owned in her own name. He did not own any other real estate.

Fast forward to March 1986 and his relationship with her young adult kids was not flash so he bought an apartment 30 minutes’ drive away in his name for $90,000 in April 1986. He moved into this apartment and he filled it with his furniture, clothes, artwork etc which had been in storage. He wasn’t divorced or separated from his second wife and in later years they moved into a new home which again was owned solely in her name.

For a few years it was his principal place of residence, but it was mostly a bolthole he could escape to get away from the new family when they wore him down. He never had any other real estate holdings at any time.

Until 2018 he principally lived in my stepmother’s house which was still owned only in her name.

He never rented this apartment or made it available for rent – it was filled with his personal effects and he used it a couple of times a week regularly. To the best that I know he never claimed anything in his tax return for this property save for incidental home office expenses while he was working.

Fast forward to today and the apartment (now worth $550k) is still the same as it has been for the last 32 years except a week or so ago my father passed away.

I want to find out if his dependents (myself and my two sisters) will have to pay capital gains tax. He spoke of their being some CGT exemption that applied to his situation, and I want to find out if this true so that I can have some backup when I deal with the accountants who will handle the estate. My experience with some tax agents is that for better or worse they don’t understand CGT that well.

Another aspect is that his second wife moved into a nursing home in mid-2017 (say 16 months ago) and while he stayed on in her home he did partly move back into his apartment – does this provide an avenue to claim this apartment as his PPOR at the time of his death. She is still alive in a nursing home and still owns her house.

TL;DR dad owned property, never rented out, don’t want to pay CGT if I don’t have to.


Thanks - Robochook

 

sorry to hear about your dad

There would be no CGT triggered transferring to beneficiaries. If it was his main residence at the date of death the beneficiaries could sell it CGT free in most cases.

His property sounds like it might be pre-CGT anyway.

 

Ah not pre-CGT that was in 20 Sept 1985 or before.

 

Hi thanks for that

is there a length of time he needed to have lived in the apartment for it to be classified as his PPOR

 

No. it is a question of fact. It either was his main residence at the time of death or wasn't.
The 6 year rule could be used too though.
Keep in mind that spouses can only have one main residence between them - unless separated.

 

There are some minor issues of complexity that mean personal tax advice would be wise. The issue raised by Terry that spouses cannot each have a main residence will impact this.

First rule of CGT is that NOBODY pays CGT unless they sell. Inheritance doesnt trigger tax. So get advice before doing a thing.

The issue of being a main residence seems somewhat uncertain and it may be that you and sister inherit not just the property but an accrued CGT issue too. There may be estate issues to address re exactly who inherited the property. It could have been left to his wife.

Remember too its called the "main residence exemption"..The information provided doesnt sound like its a main residence or a predominant residence for both partners etc.

I believe its safe to say there will be some CGT to pay if its sold. Wont be tax free.

 

thanks for the replies
no his second wife is independently wealthy and so she is specifically excluded in his will (and she will have zero interest in his estate as she kept finances very separate)
the estate beneficiaries (myself and two sisters) will want to sell the property within the next 12 months
As mentioned his 2nd wife moved into a nursing home in May 2017 so they were separated by illness and she will not be returning to her house although she may live quite a few more years in the nursing home
My father for all intents and purposes lived in his apartment property - all his bills, banking and financial statements went there, he was on the electoral roll in the area, his car was registered to that address and he paid insurance on $150,000 content among other things. So quite a personal connection to the property
possibly him getting the main residence exemption may impact the main residence exemption on his wife's property

notwithstanding all of the above he had also maintained that there was some exemption for CGT on this property even though it was acquired after Sept 85.

Do i speak with a CGT specialist? Is there such a firm?

 

Loads of taxpayers wish they didnt have to pay tax.

Where he had mail directed has zip effect. Perhaps he gets 50% exemption at best but its dubious that its THEIR main residence.BUT his wife's will face 50% tax on her property. Its a common mistake that taxpayers think they each get a exempt property. They dont. Its a common mistake and I suspect that is what he meant. He would have been quite wrong, sorry.

Thats part of the problem....

 

thanks for the replies so far - can you clarify what is the 50% exemption?

 

Don't leave this to chance, get advice early. My father recently passed away and his girlfriend who also had separate finances and her own house challenged his will and made $200000. I later found out this was the third time she has done this.

 

Seek tax and legal advice.

 

thanks for all the replies - much appreciated - yes we will definitely seek proper tax and legal advice and I will report back on the outcome

 

Sorry to hear about your Dad.

If property is held for >12 months as in this case, in most instances a 50% discount applies to CGT calculations.
Note the CG (before discount) would not be $550k - $90k, eg selling, holding costs etc reduce the gain also.
Seek some specialist advice here.