Tax scenarios on selling a pre CGT property

Hi all,


Say you had an acreage property (on 2 titles) that was purchased pre CGT and has always been a principal place or residence.


Q 1:

If you were to sell off one of the titles (house block size) and keep the larger - would there be any tax implications now or in the future - for either of the titles?


Note: smaller house block size is just land.

Larger one has house and would remain as the p.p.o.r.


Q 2:

If you never sold it and let your children inherit the property in another 20 or so years - would the children have tax to pay?


Cheers!

 

Children only inherit a property that WAS CGT free at its market value at the date of the death of the owner. The CGT free nature ends on death of the owner. If half title passes to spouse then they now have two CGT elements - 50% CGT free and thenew portion that is deemed acquired on death at market value. Then when they die the kids end up with two CGT elements. However depends if that was the surviving spouses home when they die. If it is then ALL the property passes to benerciaries at the one market value on death. If owned by two people this may later be a split costbase with 50% for each parent as aseperate element unless they die together otherwise. Not a major concern either way.

The fact pre-CGT assets were a main residence is ignored as the CGT free exemption prevails over amain residence. The main residence issue is a post-CGT concern. . However remember you are also missing a free kick. If you moved out and rented the CGT free then you could in theory have two exempt (three really) properties. The common problem for that is typically how such a matter is financed and serviced. Take care with schemes to boost the CGT free value by developing. This can leave TWO CGT assets - The CGT free land and the new build which is not CGT free.

 

Thanks Paul!
My parents have considered..and considered...and considered 3 options...

1. do nothing and let us three kids + spouses inherit the property

2. sell to a developer or well heeled owner-occupier who wants to build a 'premier' property (there's a house a few doors down that featured on Grand Designs and countless other premium builds).

3. redevelop the property themselves. As in slice her up into 4 lots (current max allowed by Brisbance City Council) then sell those lots off.

 

I would avoid the redevelop yourself option without understanding tax triggers. A pre-CGT property is easily stripped of its pre-CGT nature and subject to full tax. And GST.

• Developing has been and always was taxable under ordinary income principles before CGT came in. ie No CGT discounts. And such activities will involve GST. The GST rules may limit margin scheme calculation basis.
• A issue for the inheritance route is the risk of this asset wealth being exposed to divorces etc. ie a inherited asset protection flaw. legal advice on a testamentary trust could be a issue to consider IF that is the route. I often caution such options. This infers all three want to co-invest and co-own and do the same thing. If they currently wouldnt buy a IP together why would they want to co-inherit ? It can produce arguements when 6 people sit down. 6 people will NEVER agree. Even if its three their spouse is the silent parner who wont be silent.
• Selling as a CGT asset to someone else is a walk away option that wont trigger GST or tax. Downside is what gets built. Only a issue if remaining land and house is retained - Owners could end up with a horrid house and neighbour to regret.

Be wary of selling to a developer as they could redevelop something tacky that affects retained property. Or offer options or other ways to stall cash. A cash sale may be a preferred option. There are very cashed up developers who wont have a problem. I know a Sydney bespoke builder who LOOKS for such sites of 3-10 house lots together. And they pay a premium for the scarcity. They are reknown for their bespoke builds and will always pay cash. They then market sales for these mini housing estates to high end buyers. For a premium. Binet Homes. 23 homes in Castle Hill took them 20+ years and the prices just keep rising even to second buyers. They are long term buyers of the right land. many cashed up developers do same.

 

1. It depends on the degree of proven TS made but potentially tax free

2. No cgt on death but cost base generally reset to market value as at death.

 

Cheers Paul!