Tax Tip 254: Main Residence CGT Exemption Where one owner resides in the property and the other

Discussion in 'Accounting & Tax' started by Terry_w, 31st Oct, 2019.

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  1. Terry_w

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

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    Each owner of a property is considered to have a separate interest in the property for CGT purposes – generally. Each interest is treated separately for CGT and where there are joint owners one portion of the property might be exempt with the other portion subject to CGT.


    Example

    Bart wants to buy a property, but he cannot qualify for the loan. His dad Homer is asked to help him get the loan. A broker suggests Homer go on title and this is what happens – Homer didn’t seek legal advice. Homer owns 30% and Bart owns 70% as tenants in common.

    Bart lives in the property from settlement until selling it 10 years later.

    Homer has another property which he is using as his main residence. Because he didn’t live in this property with Bart his interest will be subject to CGT while Bart’s interest will be exempt from CGT.

    If the cost base is $500,000 and they sold it for $800,000 that is a $300,000 gain. Homer’s 30% is $90,000 and he must pay CGT on this – about $21,000 or less.


    (had Homer and Bart sought legal advice the tax could have been nil. To be explained in a future tip)
     
  2. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Generally land tax may be exempt for a property when ONE owner resides there as their principal place of residence but other issues with duty exemptions etc can restrict the non-resident owner and impact the concession

    More complex is the issue of when two persons each have a former / current residence and they become partners, defacto, spouses. And its not a case of choosing to share bills as many mistakenly think.