Tax Tip 169: Minor Children and the Main Residence Exemption for CGT

Tax Tip 169: Minor Children and the Main Residence Exemption for CGT

A minor child is able to own property.

See

Legal Tip 171: Can Minor Children Purchase Property? Legal Tip 171: Can Minor Children Purchase Property?


A minor child is also able to live in a property they own as their main residence and could even claim the CGT exemption for this property.


However s 118-175 ITAA97 provides some restrictions to this in that both a parent and a dependant minor child cannot each claim the main residence exemption. Between them they can only choose one property.


Example

Homer lives in Springfield in a main residence. His son Bart, who is 16 years old, owns a property in Shelbyville which he just purchased and is living in while he attends school there.

Homer could claim the Springfield as his main residence for CGT purposes; OR

Bart could claim the Shelbyville property as his main residence for CGT purposes,

But they both could not claim the exemption until Bart reached the age of 18.


Note that this only applies if the child is a ‘dependant’ of the parent. The wording in the legislation is “dependent on you for economic support”

If the child was a dependant of someone else, or working then the parent and child could each get the main residence CGT exemption.


Next I will cover land tax for children.


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

 

An under 18 year old who isnt dependant on one parent will be a very very rare situation.

 

That's why you have to get them working early!

 

Problem is even if working and you start paying for anything at all it might be considered dependant.

How they going to get a loan for the property with a job as a 17 year old and low starting income ? Parents ? Sounds like a dependant relationship.

Gift. Dependancy ? I havent seen one client in over 15 years where this would apply

 

No lender would lend to a minor other than mum and dad - or perhaps a grandparent. Does a loan make them a dependant on the lender? No, but it could be a possibility if it was at undermarket interest rate or it was market rates but no payments given.

Some careful advice is needed before trying this at home.

I have found a few Private rulings on dependant children with overseas parents.
RBA Content
and
RBA Content
virtually identical.

 

Ahhh yes - But Vic and NSW duties and land tax surcharges impact on such an arrangement now making them costly.

 

I had a 13 year old asking about buying a property the other day. She will be paying cash. Eastern Suburbs of Sydney too!

 

Contracting and trust issues can be a hidden trap or even a issue to explore with a solicitor