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Calculating Capital Gains Tax For A Former Residence


I bought my residential home in 2001 for $300,000, the current value is about $900,000. During the first year of living in the house I made many renovations that would have increased the value substantially, such as replacing all the down lights, new paving, updating the kitchen and bathrooms. Unfortunately, I have not kept all the invoices. I moved into my partner's house and rented out my house in 2014. Looking back, I should have had my house valued by a qualified valuer at that time. I am intending to sell my house in five years' time. I understand there will be capital gains tax (CGT) payable pro rata for the period when the house was rented out. My question is what action should I take now in order to take into account the improvements I have made to minimise the CGT? Would I be able to avoid CGT in the future if we moved back and lived in my house with my partner and rent out her house at the same time within the six years' tax-free period? Is this a good strategy? P.S.

A couple of errors there, I'm afraid. If you have been living as a couple since 2014, then you cannot legally apply the six-year CGT-exemption to your former property. Couples can only claim one CGT-exempt home between them and I presume your partner is doing just that. So moving back to your home would simply swap one exemption for another.

Since you started using your main residence to produce income for the first time after August 20, 1996, then, for capital gains tax calculations, you are taken to have bought the home at its market value at the time you first rented it.

For other readers, you must have (i) bought the dwelling after September 19, 1985, (ii) been entitled to a full CGT exemption before (iii) renting it after August 20, 1996. If all of the above apply, you must work out your capital gain using the market value of the dwelling at the time you first used it to produce income i.e. the pro-rata option is not available. (By the way, this is also true for Airbnb landlords although, if only renting a portion of the house, CGT is apportioned by the area of the home rented out.)

You should contact a long-standing real estate agency and ask for a written valuation, backed by similar sales in the neighbourhood in 2014, to be used as evidence when you eventually sell the house.

I am 72, retired on the NSW State Super Scheme (SSS) pension and my 62-year-old wife is retired on the Commonwealth Super Scheme (CSS). We acknowledge that governments have generously supported these pensions and also our combined salary-sacrificed accumulated super accounts approaching a million dollars. We currently enjoy good health and find ourselves accumulating cash. This is in online accounts and term deposits, representing a "lazy" $100,000. We would like to know if there is something more active that this money could do, possibly benefiting the community in the process. One thought is to purchase a property that could be placed into the hands of a social housing organisation. The idea is that we would use the $100,000 to get into the investment and rely on the rent to look after disbursements and repayments. Any comments or further suggestions? Our heirs would not require to cash in quickly when we die. T.M.

I understand some charities and a few private organisations are involved with social housing but I'm not sufficiently familiar with any to specifically suggest one. Also, you might find most require donations rather than temporary investments.

The government withdrew, in 2014, from the fifth round of funding a National Rental Affordability Scheme, explaining that the scheme had been slow in delivering affordable homes and had failed to achieve its delivery targets despite ongoing government funding.

If you want a feel-good investment, numerous fund managers offer "ethical" or "sustainable" options. Your wife, being under 65, might be able to place a non-concessional contribution into such a super fund, such as AustralianSuper's​ Socially Aware investment option, whose performance generally ranks near the top of the 20 or so sustainable balanced super funds on the market, according to research from SuperRatings.

If you don't want the money back, I've always argued that education is the best assistance that a well-meaning donor can provide. With $100,000, you should be able to establish a scholarship at a local university or technical college for disabled or Indigenous students, or an alternative target group of your choice.

My wife and I are Belgian nationals, both 80, who have been living in Australia for about 20 years on a retirement visa. We came to Australia because our only daughter originally decided to take up permanent residency here. On reflection, we should and could have also applied for permanent residency some time during these last 20 years. We bought a residential home soon after we came to Australia on the condition that we must live in it and we must sell it within three months of not living in it. My question is, when both of us die and we leave the house to our daughter in our will, will the house transfer to her be exempted of stamp duty, or would the estate have to sell the residential property and then give the proceeds to my daughter? We have set up a trust recently so that we would be able to distribute income to my daughter and grandchildren who are all Australian citizens now. As we are also thinking of buying an investment property, we would like to know if the same rules apply to us as to Australians (exemption of stamp duty and tax), when the property will be transferred to my daughter with a will upon our passing away? R.O.

No stamp duty is payable in NSW and Victoria when a main residence is inherited, although there can be a filing fee of $50 in NSW.

I am not an expert in visa classifications, but I suspect you have a class 410 Retirement Visa, which closed to new applications in 2005 although, since 2009, you can renew yours every 10 years. It classifies you as a temporary resident, not eligible for social security assistance. The restriction on your residence does not appear to be a current restriction.

The Tax Office doesn't use the same rules as the Department of Immigration and Border Protection. So even if classified as a "temporary resident" for immigration purposes, you can be an Australian resident for tax purposes without being an Australian citizen or permanent resident. Assuming you are so regarded by the Tax Office, then the standard rules of CGT and stamp duty apply. All of which means that an investment property can be inherited with no CGT paid until it is sold, while a main residence can be inherited and sold free of CGT within two years of death.

Note that the May 9 federal budget contained a proposal to deny foreign and temporary tax residents access to the CGT main residence exemption from that date. Properties held prior to May 9, such as yours, will be grandfathered until June 30, 2019.

I don't know that this is a good time to be buying property. Both residential and commercial property have enjoyed boom-like conditions and these are usually followed by some degree of pain.

We are thinking about buying some shares, say $200 worth each for our young teenage grandchildren, in their names, as the current bank interest isn't very encouraging. Would we be able to do this and would there be any problems? We are both retired on an age pension. We feel it would be good for them to follow the market and learn how it works, and interest them in saving and building good ideas for the future. J.S.

Buying shares on the Australian Securities Exchange requires brokerage to be paid. CBA's Comsec, among the cheapest, requires a minimum parcel size of $500 and charges $19.95 for small parcels of shares if bought over the net or $59.95 if over the phone. Comsec also offers "share packs" but the smallest costs $4000 with a $66 brokerage fee.

If you can manage it, then, given the ongoing sell-off in bank shares, it might be a good time to buy a parcel of, say, NAB (because it offers the highest dividend yield among the big four banks) and sign up for the dividend reinvestment plan.

George Cochrane

The Sydney Morning Herald

26 May 2017


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