Question about paying capital gains tax on a holiday unit?

Discussion in 'Accounting & Tax' started by wylie, 3rd Jul, 2015.

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  1. wylie

    wylie Moderator Staff Member

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    My sister-in-law and her husband bought a holiday unit in 1996 which has never been rented. They sold their PPOR and moved into their holiday unit permanently twelve months ago, bought a house nearby to move into. It needed major renovation which has been planned, drawn up, certified and quoted and the renovation will start in a couple of weeks. They will hopefully move into their renovated house before Christmas this year.

    They said today they understand they will pay capital gains tax on the holiday unit and that this rule had changed recently (is this right?). I've never thought about capital gains tax on holiday houses so couldn't answer their questions and said I'd ask here.

    Does this work the same way as capital gains tax on a rental house?

    They asked me if there is a way they can minimise the tax? I told them we had prepaid what we could to minimise the capital gains tax on a recently sold rental house, but if their unit has never been rented, do they just pay tax on the difference between the sale price and the purchase price? They've tiled the floors, put up new curtains etc, but no major work like kitchens and bathrooms.

    Would they halve the gain due to holding more than twelve months and then halve the remaining gain between themselves and add it to their income (which is probably only from shares and the pension)?

    He is retired and has accessed his super (age 72) and she is aged 62 but still has super AFAIK. Could she put $35K into her super so she is paying tax at 15% on that portion?

    Neither of them is employed.
     
    Last edited: 3rd Jul, 2015
    wylie, 3rd Jul, 2015
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  2. Terry_w

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

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    I don't know of any 'rules' changing recently in relation to this.
    Yes will be subject to CGT even though no rent received. But if was partially used for main residence after other one sold then there may be partial exemption.

    They can also use most expenses not otherwised claimed - interest etc - to reduce CG.
     
    Terry_w, 3rd Jul, 2015
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  3. wylie

    wylie Moderator Staff Member

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    Thanks Terry. I'm guessing there is no loan on the unit any more, but do you mean the interest they paid on the loan to purchase it can be added to the cost base?

    If yes, does that mean the other expenses, ie. rates, BC fees etc can be added to the cost base?

    I also didn't know about any rule change, but holiday house rules are foreign to me.
     
    wylie, 3rd Jul, 2015
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  4. Terry_w

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

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    Terry_w, 3rd Jul, 2015
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  5. wylie

    wylie Moderator Staff Member

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    Thanks so much Terry. I'll pass this information on to them.

    Much appreciated.
     
    wylie, 3rd Jul, 2015
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  6. Terry_w

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

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    Over the years all these costs add up so it will save them a **** load of tax.
     
    Terry_w, 3rd Jul, 2015
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  7. Terry_w

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

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    Oh wow, we can say rude words here. Not censored like SS. Bum.
     
    Terry_w, 3rd Jul, 2015
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  8. wylie

    wylie Moderator Staff Member

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    LOL... you crack me up :p:D
     
    wylie, 3rd Jul, 2015
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  9. Akagrp

    Akagrp New Member

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    What Terry noted above, but also it may be worth them getting a valuation on Unit just before they moved in given they sold PPOR and moved in the unit making it PPOR for the period they moved in until they move out/sell, given insane property growth may save a few thousand in tax
     
    Akagrp, 3rd Jul, 2015
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  10. Terry_w

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

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    Not before they moved it, but after.

    The CGT before living in will be worked out on a time basis, but valuation after on a growth basis - assuming not using the 6 year rule.
     
    Terry_w, 3rd Jul, 2015
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  11. Mike A

    Mike A Well-Known Member

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    Yes consider some tax planning opportunities as well as to whether they can also make a deductible contribution to superannuation if there is a capital gain. Look at the 10% test and see whether they meet the test. Look at work related tests as well. Might be a good tax planning opportunity after taking into account third element costs as mentioned by terry.
     
    Mike A, 4th Jul, 2015
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