Tax Tip 356: The Main Residence Exemption When 1 Owner lives there and the other owner doesn’t

Since each owner of a property has a separate CGT interest in the property the main residence exemption will only apply to each individual owner if it is their main residence. That is, it could apply to one owner, but not to the other.


Example

Homer helps Bart get into a property by being a joint owner with him being a 30% owner and Bart owning 70%.

Homer has another property that he lives in with his wife Marge and wants to claim the main residence exemption on that.

This means when the jointly owned property is sold Bart will get the CGT main residence exemption on his share, but Homer will be taxed on his 30% of the property.

So basically 30% of the capital gain would be assessed and taxed in the hands of Homer.

But, because the property was never income producing, Homer will be able to use 1/3 of all the cost base expenses to reduce the CGT on his share.

 

BUT...even when it does apply to just one ...Their spouse may be impacted by any choices.... on CGT for their property. It a wierd little way that a non-ownership issue can affect CGT for a spouse.

Eg Bart meets Suzie Q and they then live in her home. Bart thinks he can sell his 70% of Evergreen terrace and its tax free. Sure it may be for actual occupancy and also absence. But Suzie will face a CGT consequence of that and they should really sit down and discuss this and get tax advice on the CGT choices so both Bart and Suzie's tax positions are both considered. eg It may be preferable to allow Suzie's Darling Point waterfront home to be given preference for CGT exmption rather than Bart using the absence rule. Or could it be 50/50 ?

This can also extend to land tax. Spouse exemptions affect BOTH parties and their property. No choices are allowed. Its fact based. We often see taxpayers who are new spouses who each own a former home who think they can each claim a PPOR when they live in a specific property. That is usually the exmept one.

 

We’re looking to be in a situation just like this where Homer is me and Bart is my father.

A property is on the market for $350K in QLD and I want to help my dad purchase to live in. I am able to borrow $150k as an investment loan and dad will put in 200K cash as he can’t get a loan because he has no income at the moment. He wants to subdivide a few years later with money that will be available to him then and build a new property to rent out while living in the front existing property.

Is it possible to do tenants in common with a spilt of 30% me and 70% him even tho the buying amounts are different? Will the bank allow this? Also should he pay out my loan before the subdivide to make things simpler in terms of CGT. I only want to help him purchase the property and I’m not looking to make any money out of it. Just want to know the smart way of going about this in terms of tax. I know this may not be on topic but any advice would be much appreciated.

 

Yes

paying out a loan doesn't change CGT
Tax Tip 315: Loans and Capital Gains Tax Tax Tip 315: Loans and Capital Gains Tax

that may not be the way to do it.

Read this and then seek legal advice.

Legal Tip 208: Helping an Elderly Parent Buy a new property Legal Tip 208: Helping an Elderly Parent Buy a new property