Tax Tip 151: Dependant Children and the Main Residence CGT Exemption

Some people purchase a property and let one of their children (under 18 year old) live in it. They may do this so the child can be nearby school for example.

This property could qualify for the main residence exemption even though the parent as the owner is not living in the property, and may never have lived in the property.

However, the main residence exemption can only apply to 1 property in this instance, so if the parent owns another property and is living in this, a choice will need to be made on which property to claim the exemption on.

See s 118-175 ITAA97. INCOME TAX ASSESSMENT ACT 1997 - SECT 118.175 Dependent child having different main residence

 

This can give rise to many misunderstandings :
- Parent / family must choose 1 property for income tax and land tax. Land tax rules are more limiting and contain a requirement to occupy and for a designated minimum time period. Land tax can result.
- Punitive land tax AND surcharge (NSW / Vic) for foreign owners and absentee landlords
- Problems when child turns 18. Concession is lost.
- Inability to use the absence rules (eg child is aged 18+ and parent cant claim to be absent)
- Child can never claim main residence exemption themselves as they have no ownership interest (ie uni age etc)
- Attempts to claim rent is paid by a adult child may be attacked as non arms length or deductions denied if its unpaid.

Similiar problems occur when defactos or married couples each own a home.

 

Hi Paul

Not sure I agree with all your points, or see the relevance to this topic?? But that is a debate for another time.

 

All tax related issues I see revolving around "clever" ideas to use kids which have shortcomings.