Capital Gains Tax - Will I Need to Pay It?

geekcohen on 14/09/2020 - 07:58

Hi all,

My wife and I have built our first home but have had to sell it due to a change in the family circumstances and the new house being 2 hours away from family.

We started the process 2 years and due to land titling delays, it has only just been finished with the build. We are selling the property straight away.

It is our first home, haven't ever owned or built a home. We are selling it and then buying another property closer to family.

Do I have to pay capital gains? Accountant is saying no at this stage, but I am concerned based on what the ATO website says.

Anyone else had a similar experience?

Thanks,

Poll Options

  • 15
    No
  • 2
    No idea
  • 17
    Trust your accountant
  • 36
    Yes
Financial

Comments

  • bemybubble on 14/09/2020 - 08:11
    +8

    TD 51 from the ATO has your answer

    1. Some relevant factors may include, but are not limited to:

    (i) the length of time the taxpayer has lived in the dwelling
    (ii) the place of residence of the taxpayer's family
    (iii) whether the taxpayer has moved his or her personal belongings into the dwelling
    (iv) the address to which the taxpayer has his or her mail delivered
    (v) the taxpayer's address on the Electoral Roll
    (vi) the connection of services such as telephone, gas and electricity
    (vii) the taxpayer's intention in occupying the dwelling

    But most important is this line in that TD:

    3. Mere intention to construct a dwelling or to occupy a dwelling as a sole or principal residence, but without actually doing so, is insufficient to obtain the exemption.

    Based on what you're saying you didn't even have a chance to make it your primary residence. So unless you can tick most of the above off i'd say you're in CGT territory my friend

    • dasher86 on 14/09/2020 - 08:45
      +29

      Also may need to pay back any first home owner grants if you did not live in the dwelling.

      • pjetson on 14/09/2020 - 08:55

        Ouch!

  • xreenberg on 14/09/2020 - 08:58
    +4

    Need to actually live in premises to access main residence exemption.
    Can you not live in it for a day?
    Suggest you might be able to apply for commissioner's discretion if you have genuine circumstances that have prevented you from accessing the main residence exemption.

    • bemybubble on 14/09/2020 - 09:03
      +1

      Unfortunately there is no commissioners discretion when it comes to the Main Res Exemption :(

      • bemybubble on 14/09/2020 - 10:11
        +3

        Also living in it for a day won't cut the mustard. Must be a minimum of 3 months in order to get the exemption when you're building a PPR.

  • pjetson on 14/09/2020 - 08:58
    +15

    Will there in fact be a capital gain when you sell it? Could it be possible that you might make a loss, after considering all costs to get to this point?

    • MrBear on 15/09/2020 - 17:32

      You mean selling it for less than cost of land + cost of building? Not very smart thing to do, but if so, you would get a capital loss you can carry forward.

      Plus, will they need to pay GST on this or parts of it? (I'm not very clear about this which is the only reason I included it)
      https://www.ato.gov.au/business/gst/in-detail/your-industry/…

      • pjetson on 15/09/2020 - 19:45

        You mean selling it for less than cost of land + cost of building? Not very smart thing to do

        Yes, that's what I mean, but I don't mean as a strategy.

        Property prices are down in some areas, and it may be that the OP isn't able to sell up at a price that actually gives them a capital gain, taking into account all their costs to get them to this point.

  • mbck on 14/09/2020 - 09:00
    +6

    Get a new accountant

  • JimmyF on 14/09/2020 - 09:25
    +7

    We are selling the property straight away.
    Do I have to pay capital gains? Accountant is saying no at this stage, but I am concerned based on what the ATO website says.

    Is this a REAL accountant as they are clearly unaware of CGT laws.

    https://www.ato.gov.au/general/capital-gains-tax/your-home-a…

    and

    https://www.ato.gov.au/General/Dispute-or-object-to-an-ATO-d…

    Your ‘main residence’ (your home) is generally exempt from capital gains tax (CGT). To get the exemption, the property must have a dwelling on it and you must have lived in it.
    You're not entitled to the exemption for a vacant block.

    As you haven't lived in this place you are selling, you can't claim it as your PPOR so you won't be exempt from CGT.

    Do remember CGT is only on the PROFIT, not the entire sale.

    So if the land + build cost + other costs = $500k and you sold the place for $550k, you made a profit of $50k. Don't forget to take out the agent fees from this, so your profit is more like $40-45k.

    This is what is claimed and you pay tax on this amount, not the $550k

    On a side note, did you get any grants to build? first home owner or new build grants? These have clauses that if you don't live in the place for a certain amount of time, you have to pay them back! This is normally 12 months minimum.

    With all this factored in, you might be better to live in the place for 12-18 months and then move.

  • spal on 14/09/2020 - 09:25
    +4

    Probably shouldn’t have used a poll for the post. There are 5 votes for No, same for the Yes vote. You have been given correct answer with explanation. Can you not occupy the property for a short while? For capital gains exemption you just need to establish your primary residence. There is no minimum period of stay. Although you must have an intention of establishing a primary residence, which you clearly don’t.
    Having said that, are you going to make any gains, because isn’t the prices are dropping.
    Also, if you have received any stamp duty and first home owner concessions, these will need to be paid off too. You must move in the property within 12 months, and after moving in stay there for 12 months. Commissioner has a discretion to extend the move in period and vary the period of stay. But I doubt you will have sufficient reasons to request discretion.

    • JimmyF on 14/09/2020 - 09:30
      +2

      Also, if you have received any stamp duty and first home owner concessions, these will need to be paid off too. You must move in the property within 12 months, and after moving in stay there for 12 months

      I think this will be the million dollar question to see what the OP can do.

  • Dexter on 14/09/2020 - 10:31
    +3

    Ring the ATO. They are more helpfull than you think.

  • FSTB on 14/09/2020 - 10:39
    +1

    Why not just hold the property for now and sell in better market conditions? Use the equity to borrow against it for your other property.

    • EightImmortals on 14/09/2020 - 11:40
      +1

      Better market condition? Like in 20 years time if you're lucky? The only way for the next few years is DOWN.

  • rickb on 14/09/2020 - 10:49
    -1

    My initial thinking is no. From your statements this does not sound like an investment property and you could argue it is a residential home.

    Another thing to note is that you need to make a capital gain to pay capital gains tax. Do you think a capital gain is on the cards in this environment?

  • Almost Banned on 14/09/2020 - 10:55

    I think you've been given generally good advice above,
    While I would not recommend acting against advice I would suggest that so long as you are only claiming one PPR at a time it is unlikely to trigger any alarm bells…

    • spal on 15/09/2020 - 09:19

      Not really. State Revenue would have enough data to commence an investigation. The results of that investigation will be shared with the ATO.

  • netjock on 14/09/2020 - 11:04

    Main property exemption maybe not.

    If you've held onto the land for more than 12 months then CGT discount of 50% will apply then it is at your marginal tax rate. ie. if you made $100k, you report $50k and if you are on 40% tax you pay 40% on the $50k not on the full $100k.

    How you split between land and house is probably some math involved.

  • Grat on 14/09/2020 - 11:24
    +1

    Some people can afford to have more than one residence. People sometimes reside in unfinished houses whilst spending time at friends, girlfriend's or wive's houses. Perhaps your accountant is of the opinion that your principal place of residence is the one that you nominate? Not the one you have spent most time at. I would imagine that because of the problems with the build you have spent a lot of time at your property. I have not looked at the definition myself recently but words like principal place of residence can have meaning that is different to simple english when put in regulations and legislation.

  • Grat on 14/09/2020 - 11:32
    +1

    From Ato site

    build or renovate your home on land you own – you can treat the land as your main residence for up to four years before you move in, provided you move in as soon as practicable after it's finished

  • justjack on 14/09/2020 - 11:54

    You can easily make this your primary residence and not pay CGT

    DYOR this is not advice

  • brad1-8tsi on 14/09/2020 - 19:48

    is it a personal place of residence (family home)? Did you live in it? If yes to both then no capital gain.

    If it was always intended to be your PPOR and you have never rented it to anyone then you should be OK.

    You can enquire to the ATO and even seek an individual ruling.

    Why would you think your accountant has it wrong?

  • clickchen on 14/09/2020 - 22:00

    You may be subject to GST as well… Need to check that too and make sure you're exempt if that's the case.

  • accountant4Jesus on 15/09/2020 - 09:00
    +1

    Residence means you have to have lived in it. If you don't live in it you don't get the exemption and when you sell it a capital gains tax event occurs.

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