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My husband and I own a house that we lived in for a little more than five years. Then, in 2007, we moved out and became renters, so I could live closer to the university where I undertook a degree course. Our house was leased. We continued to be renters until our son completed his schooling in 2019, but couldn’t immediately move back to our home as we had signed a new 12-month tenancy. Then, COVID-19 happened, so we felt safer to stay put. We now hear that if we sell our home without moving back in, it would attract capital gains tax (CGT), regardless of: 1. It is the only property we own. 2. We have already lost a substantial part of our earnings/savings by way of the rent we paid. 3. We purchased the property as a home to live in, but had to rent it out because of my study/career opportunity. I would like to repair our home and sell it without having to move back into it, without having to pay CGT so that we may use the equity and our present savings and income to purchase a new home to live in. We have been advised that the only way to avoid CGT is to move back into our home for a year before we sell it. Where do we stand in this respect? R. K.
Once you moved out of your home and began earning income from the property (you rented it), the rules allowed you to still claim it as your main residence, exempt from CGT, for a further six years, as long as you didn’t claim another home as a main residence, which you didn’t.
If you hadn’t rented it, you could claim the main residence exemption indefinitely.
Once you rented your house for more than six years, you are taken to have purchased it at the time you first rented it – not at the end of the sixth year. This is called the “home first used to produce income rule”.
So, in your case, you would need to know the value of the house as at 2007. To this amount, you would add any outgoings for which no tax deduction was claimed, plus selling costs, and this would be your “cost base”.
If you sell your home without moving back into it, you can still claim the first six years as an exempt portion of the period subject to CGT.
For example, let’s say the house was valued at $450,000 in 2007, you incurred $25,000 in capital costs over 15 years, and you sell it for $1 million in 2022 exactly 15 years later (in reality, you count the number of days), incurring another $25,000 in selling costs. Your cost base would be $500,000 and your profit $500,000.
For the 15 years that you rented it, you can claim it was exempt for six years, and so 9/15ths of your $500,000 profit, or $300,000, is subject to CGT.
Since you owned it for more than 12 months, you receive a 50 per cent discount, so $150,000 is subject to CGT.
Since the property is in joint names, you would each add $75,000 to your taxable income in the 2022-23 year.
If you each already pay tax on salaries of, say, $100,000, then your additional tax is about $28,350 each, and thus total tax on the sale of the house is $56,700, or 5.67 per cent of the sale value used in our example.
Moving back into the house does not eliminate CGT. However, if you stay six months to re-establish it as your main residence, you can then rent it free of CGT for a further six years. If you then sell it, 12.5 years of the 22.5 year ownership period would be CGT-exempt.
My 94-year-old father has recently been diagnosed with dementia and been admitted into a nursing home. He has some unit trust investments that could be 20-25 years old, but has no recollection where the original paperwork is and no idea of their cost price. How can I find out their original cost? I need to sell them to fund the refundable accommodation deposit at the nursing home. His tax accountant said even the investment companies would not know the original costs. Also, if my father dies, is the CGT calculation based on the original purchase cost price, or from the date my father passed? I.M.
I assume he has investments in public managed funds. If they are listed on the stock exchange, you could simply sell them on the Australian Securities Exchange using a low-cost broker.
Assuming they were all purchased after 1985, CGT is based on the original cost price, whether sold before or after he passes.
However, if all distributions were reinvested, then each such purchase of new shares has a new CGT cost base and, if you don’t know these, you simply have to make a reasonable guess that would satisfy the Australian Taxation Office.
If they are unlisted funds, then the fund manager should have records of the purchase price, and you simply have to contact them and request a sale.
If the fund manager no longer exists, you may be able to track them down via delisted.com.au, which records whether companies or funds were taken over or liquidated.
It’s a good lesson to all. Keep good records and tell family where they can be found.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. All letters answered. Help lines: Australian Financial Complaints Authority, 1800 931 678; Centrelink pensions 13 23 00.
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