s118-192 Home First Used to Produce Income

Encountered an interesting issue a few months ago. A tax adviser I know came to me with a issue. He had been approach by someone who cocked up their prior year tax returns. ATO picked up something at a recent audit and it now cost him more tax than he expected.

Taxpayer used s118-192 the first used to produce income rule when he rented out the former home. Lets say the value was $100,000. Eight months later the taxpayer was approached by a developer who offered $200,000. Taxpayers spouse also sold another property that was once their former home and their claim for the full exemption meant the other spouse couldnt also claim the exemption. The way they lodged acted as a election or choice for the main residence exemption.

So upshot is the taxpayer had an assessable gain on a former residence after less than a year.
Return claimed a 50% CGT discount on the basis the taxpayer had qned the property for 5+ years. ATO says its not eligible for a discounted gain. So all $100K is assessable as a non-discounted capital gain.

Yep. ATO used to have a decision on this. ATO ID 204/945. Its now withdrawn and the view is contained in other more current publications but the Commissioners view is that a CGT event occurs to create a CGT costbase according to s118-192 and the relevant CGT date is the date the property is first used to produce assessable income. So any taxable gain arising from s118-192 needs to consider the CGT date and only AFTER 12 months can a discounted gain occur.

The stinger is that in this example the two taxpayers could have amended their returns to marginally improve the way they both lodged had they known this. However the spouse was out of time to amend by a few weeks where the husband was not. They lodged a month or two apart.

However my suggestion was to seek the Commissioners approach to amend out of time. The specific circumstances of the spouses lodging on different dates was accepted and allowed due to the implied requirements of the "family" rules for the main residence exemption.

 

Thanks Paul, I did cover this example in a different thread (in last 6 months).
I initially heard it on a podcast (The property couch i think). The deemed sale at s118-192 also reset the start date of the >12 months holding period.
The tax experts here (likely yourself also) confirmed the same answer at that time as you have given above. So at least our gurus are consistent as well
Glad the taxpayer got a good result after approach to the Commissioner.

 

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