Tax Tip 247: Strategy-Don’t live in your main residence if it is preCGT

Properties purchased prior to 20 September 1985 are exempt from CGT (with a few minor exceptions). This includes properties that are rented out. If you are one of the few people that own one of these properties it would be best, from a pure taxation point of view, to not live in it. Living somewhere else would give you an additional CGT free property.


Example

Grandpa Simpson bought his home in 1984 when he was 18. He has always lived in it but has one additional property that is rented out.

Grandpa is getting old so Homer proposed that he buy the house next door to Homer’s property so he can be closer to home and Homer can look after him.

Grandpa suggests selling the existing main residence and using the funds to buy the new one, but Homer knows it would be better for Homer if he doesn’t sell.

Homer lends his dad the money to buy the new one.

Grandpa does that. He buys a new property next to Homer and moves in straight away.

Grandpa’s first house is now rented out.

Grandpa dies 10 years later and both properties had jumped in value. Both doubled in fact.

Homer inherits both properties with the cost base being the value at death of Grandpa. Homer could sell both tax free. He decides to sell the first property and to develop his main residence and the property next door and build 5 townhouses.

Homer has enough funds from the sale to construct without the need for finance.


See:
Tax Tip 242: Pre CGT Assets and Death Tax Tip 242: Pre CGT Assets and Death