Tax Tip 210: How Non-Owners can be affected by the Main Residence Exemption

Discussion in 'Accounting & Tax' started by Terry_w, 9th Jun, 2019.

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  1. Terry_w

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

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    Spouses can only claim one main residence, for CGT purposes, between them, not one each. Therefore, getting a spouse can affect you unexpectedly with tax issues. This is especially the case if finances are kept separate and you don’t coordinate.


    Example

    Fred and Wilma keep their finances separate and they each had previous main residences before they moved into their current main residence.


    Unbeknown to Fred, Wilma sells her previous main residence and uses the 6 year rule to claim the main residence CGT after she moved into with Fred as a spouse. This means if Fred sells his previous main residence, he won’t be able to claim it as the main residence after the time they became spouses.


    He doesn’t know this and only finds out after an ATO audit and the ATO impose a penalty of 25% plus interest on him – plus the CGT he should have paid.


    Moral of the story – talk to your spouse OR use the same Tax Agent to prepare your tax returns.
     
    Terry_w, 9th Jun, 2019
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  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Similar issue can exist for land tax

    Hubby owns a property (his) and his defacto also owns hers. Where do they live? Take care not to tell OSR you move between homes. They may choose which is the principal place of residence for BOTH of them. But when you do tell them that you both live at his property then they will apply a 100% exemption to that and NO exemption to hers. Land tax may apply to this. And no, it doesnt have to be rented out for land tax to apply.

    The definition "principal place of residence" is important.

    So is "spouse"....Many people try to simplify matters by trying to avoid calling their partner a spouse. And may not have complied with ALL the family being covered by the SAME private health policy. **
    But they may be and using separate tax advisers can make things worse.

    ** Why did I say that ? Its become a target for the ATO to focus on people who are a couple or family and yet each has a separate health policy. It enhanced audit risks rather than reduce it. I'm seeing more same sex couples aught for this issue too
     
    Paul@PAS, 11th Jun, 2019
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