Capital Gains Tax Exemption Scenario

sarahx0x on 26/07/2024 - 12:05
Last edited 26/07/2024 - 16:51

EDIT: thanks those for taking the time to comment. I am not trying to find a way out, just genuinely curious if there was means for exemption

Hey Guys wondering if anyone has ever been in a similar scenario before regarding claiming CGT exemption and what your outcome was? I have been getting mixed responses from my accountant and husband's, as well at the ATO hotline specialists so thought i'd see if anyone in the community has experienced similar while i reach out to tax lawyers for consultation quotes

The scenario is below:

2016 - purchase land and build house with sibling
2017 - move in with parents, sibling and my partner once house finished building
2018 - sibling needs to get her name off house to be able to buy another house with fiance. I did not want to sell at the time so everyone mutually agrees to transfer sibling’s share to my partner. Partner and I decided it will become an investment. We all move out Dec 2018
2019 - property is rented out Jan 2019, official transfer and new bank loan approvals etc finalised in April/May 2019
2024 - we have now sold the property - is my spouse able to claim CGT exemption? Technically the house was his PPOR within 6 year rule however transfer date was after the property became a rental so seems like a grey area. I have had people from the ATO hotline say yes and no about 50/50

Poll Options expired

  • 0
    Yes can claim CGT exemption
  • 40
    No cannot claim CGT exemption
Financial Capital Gains Tax

Comments

  • Naiht on 26/07/2024 - 12:13

    When was the property transferred into your partner? Also Dec18?

    Where did you live after you moved out? Just renting a place?

    • sarahx0x on 26/07/2024 - 16:27

      @Naiht transfer officially happened Apr 2019 - tbh didn't think about timings and scenarios of if we sold it at the time. Might have been better to transfer and keep living in there but i moved back into my parents' house and him to his parents' while we saved for our wedding.

  • Gunnar on 26/07/2024 - 12:18
    +11

    Option C - Ask for written advice from the ATO as you'll actually get info you can use as evidence if you are accused of not doing what you are supposed to.

    Send your request and writing and include that you are requesting written advice because you have received mixed responses from the helpline

    • sarahx0x on 26/07/2024 - 16:29
      +1

      thanks @Gunnar will do so i can get a final answer and put this to bed lol

  • FoxJump on 26/07/2024 - 12:20
    +10

    if in doubt, get a free private ruling from the ATO

    theyll listen to your circumstances and tell you officially what to do. if they say yes, then a special case is made just for you and you can claim it.if not, then not.

  • alvian on 26/07/2024 - 12:23
    +7

    Tax matter is now a poll? Is the ATO obliged to follow the winning option?

    • markathome on 26/07/2024 - 13:44
      +2

      Yes. This poll is very timely too: Scotty is just about to announce the OzTaxAdvice rename for the site.

  • MS Paint on 26/07/2024 - 12:24
    -6

    mixed responses from my accountant and husband's

    How many husbands do you have?

    • pjetson on 26/07/2024 - 13:18
      +7

      It's a possessive not a plural, I think the OP means her husband's accountant.

      • MS Paint on 26/07/2024 - 13:46
        +4

        Punctuation makes sentences. Cheers

    • 1st-Amendment on 26/07/2024 - 15:23
      +3

      You know that apostrophe isn't just there for looks…

      • MS Paint on 26/07/2024 - 15:35
        -1

        You know that I enjoy a good paranomasia and I also shit post a lot….

        • askbargain on 26/07/2024 - 18:49
          +1

          one way to admit you can't read

          • MS Paint on 26/07/2024 - 19:36
            -3

            @askbargain: And back at you to show you don't like puns or have a sense of humour.

  • DingoBilly on 26/07/2024 - 12:40
    +1

    For you, you bought the place and lived in it as your PPOR, so 6 year rule applies.

    It came into your partner's name once it was no longer a PPOR. So not sure how you would claim it was their PPOR for tax purposes? Unless you can claim and legitimately prove when you transferred the property into your spouse's name you intended to live there, and then circumstances forced you to change it like a job change interstate - I don't see how they can claim the tax exemption.

    • freefall101 on 26/07/2024 - 14:35
      +1

      Once people are married or in a domestic relationship, it can be a PPOR without actually being the owner. The opposite issue to two spouses buying two houses and trying to claim PPOR on both (you can't do it).

      It's a bit of an odd one, it's why they need a tax ruling on it and don't ask the internet. It's also explained horribly badly with the "official" dates vs dates they decided on stuff - everything that's not an official needs to be completely ignored. Also sounds like the sibling might need to pay capital gains, it's not clear when they bought their new house in 2018 but if they only sold their share in May 2019 it's possible they were over 6 months and were getting paid rent.

      • 1st-Amendment on 26/07/2024 - 15:27

        Once people are married or in a domestic relationship, it can be a PPOR without actually being the owner.

        You sure about that? I'm not, but I did ask my accountant about the pros/cons of putting properties in one name or both a few year ago and he said you need it in both for all the tax benefits to apply. If your name is not on the contract, you are not an owner.

        • freefall101 on 26/07/2024 - 16:04
          +1

          Can, not has to be, everything is conditional. It sounds like you own multiple houses then it will make a difference in the capital gains, sure, but I'm solely talking CGT exemption on a single property. An investment property is totally different because you want to split the gains. But as per my example, you can't just own two houses as a couple and claim PPOR on one each, there are specific laws around the tax exemption and couples.

          OP might have the question wrong, it's not whether there is CGT for the spouse but the 50% of the property in general because it was being rented out when it was transferred from the sibling and thus not a PPOR for them. An accountant needs to go through the whole lot properly, get all the facts and put it to the ATO though.

  • djsweet on 26/07/2024 - 12:45
    +1

    I guess the question boils down to "do you have to be on the title for a house to be your PPOR". I would say the answer is no. So you should be fine. But you will need a private ruling from the ATO.

    • netjock on 26/07/2024 - 12:49

      Tax law is pretty clear. Unless you have some kind of transaction that took place you really can't just claim it as PPOR. If you are a renter and then bought the property you are renting could you say PPOR from when you started renting.

    • 1st-Amendment on 26/07/2024 - 15:13
      -1

      I guess the question boils down to "do you have to be on the title for a house to be your PPOR". I would say the answer is no

      How do you think that works? You can't claim to own something you don't own (or didn't at the time you are claiming to be an owner).

      • Crow K on 26/07/2024 - 15:59

        PPOR is Primary Place Of Residence, it's not based on "claiming ownership".

        Renters aren't on the title of the place they are renting, and the place that are renting is their PPOR.

        • jrvb42 on 27/07/2024 - 09:03

          Are you basing this opinion on a legal definition, or just on wording semantics?
          We're dealing with tax law here, not English semantics.
          Even with semantics, the term "your" probably implies the need for ownership - as a tenant the property is not "yours".

          • Crow K on 27/07/2024 - 10:34
            -2

            @jrvb42: It's the definition the ATO uses, I don't know if I'd go so far as to call it "the legal definition", because the words are just interpreted as their common usage?

            If anything here is semantics it's deciding "your", referring to the person, implies legal ownership. Does your country of birth imply you own that country? Your three last places of employment imply you owned three past businesses? Your primary place of residence imply that you own a property?

            • larndis on 29/07/2024 - 08:04

              @Crow K: ATO definitions are based on tax legislation. If you think they have incorrectly interpreted the legislation you can test that in court.

              • Crow K on 29/07/2024 - 08:31
                -1

                @larndis: I don't think anything at all along those lines, and I can't see what would lead you to think that. Were you intending on replying on someone else?

                • larndis on 29/07/2024 - 08:37

                  @Crow K: You were suggesting that ATO definitions and legal definitions were not one and the same, and debating the meaning of 'your'. I was pointing out that they should be the same, and if you disagree with the ATOs interpretation of the legislation your option would be to test that in court.

                  • Crow K on 29/07/2024 - 10:17
                    -1

                    @larndis: The definitions aren't "one and the same" because there isn't The Big Book Of Legal Definitions for every word and term.

                    People's circumstances differ so wildly that the ATO applies general principles, which includes using everyday words (and explaining the intention of the rules in context).

                    I really think you've picked the wrong person to discuss this with, you either don't understand what I said or you don't understand the general concepts.

                    Either way, I'm out.

                    • larndis on 30/07/2024 - 12:38

                      @Crow K: Did not downvote but really struggling to follow your point, or what it is I said that you have a problem with.

                      You seem to misunderstand the process. First, the tax legislation is written/amended/passed. Then, the ATO are tasked with administering the legislation, which is incredibly loooooong, detailed and complex in an attempt to cover a vast array of circumstances and possible loopholes.

                      In administering the legislation, the ATO provide a range of materials to assist taxpayers with complying with the legislation. While these materials are likely in 'plain English' as much as possible, they are very much based directly on the details of the legislation and not some ethereal 'general principles' as you seem to believe.

                      If there are some general concepts I'm not understanding please enlighten me.

                      • Crow K on 30/07/2024 - 14:57

                        @larndis: Djsweet said "do you need to be on the title of the house to claim PPOR, I think it's no"

                        1st amendment said "of course you do, how else could you claim ownership"

                        I responded with "primary place of Residence" is a residence question, not an ownership question, and I had the renter example that demonstrated otherwise.

                        That's the end of it. Subsequent questions about whether these are legal definitions are entirely irrelevant to my point.

                        However, if you or anyone else wants to link the ATO legislation that defines that term, be my absolute guest.

                        In the absence of a link to ATO legislation confirming PPOR determines ownership, the matter is settled (in my and djsweet's favour, git gud scrubs and haters).

                        • larndis on 30/07/2024 - 16:34

                          @Crow K: Literally my whole point was that ATO definitions do not exist separately to the legislation, which you are suggesting they do.

                          Here are the links, knock yourself out. Relevant section looks to be 118.100. Note the ATO term is Main Residence Exemption, they don't use PPR/PPOR.

                          https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/con…
                          https://www.legislation.gov.au/C2004A05138/latest/text/6

                          • Crow K on 30/07/2024 - 16:53

                            @larndis: So you're confirming that there is no "ATO legal definition" for the term Primary Place of Residence, then.

                            Glad to hear I was right all along? Like I have been saying? The entire time? Yes?

                            • larndis on 30/07/2024 - 22:37

                              @Crow K: Mate, I still have no idea what you're upset about. You seem to be really determined to ignore my point and focus on something else.

                              • Crow K on 30/07/2024 - 23:08

                                @larndis: Fair enough, this is a good time to agree to disagree and part ways.

  • Duckie2hh on 26/07/2024 - 12:49
    +2

    transfer date was after the property became a rental

    Your time line needs correction then.

  • netjock on 26/07/2024 - 12:55
    +4

    Your accountants can't swing it because they probably can't make the paperwork work.

    ATO hotline it depends on who you get and how you explain and whether they actually get it at all.

    You can get a private ruling. Before that you need to make sure what the paperwork says. The paperwork can only prove your husband became joint owners after it started renting. Was his name on any bills for the property to prove he lived there before that date? Even then you've still got to argue what tax law actually says about assets. It really isn't your asset until you pay for it and in your possession.

    Your scenario is like a renter who buys the property they are renting and claim it is PPOR from when they started renting.

    Good luck. I know we are your last hope.

  • dtc on 26/07/2024 - 13:21
    +3

    CGT liability commences on the date of the contract for sale not the date of final transfer. So if the contract for sale was before you moved out then you may be ok.

    However, CGT liability only commences on the date of the contract. If your partner did not own the house before that date then CGT just doesnt apply until the date of the contract (whether to incur a liability or to claim an exemption). CGT only starts applying on the contract date and if the house was being rented on that date, then he has never lived in the house as a main residence.

    My interpretation for what its worth (being worth what you paid for it)

  • Dollar General on 26/07/2024 - 13:24
    +2

    The asset has been held for over 12 months so 50% CGT discount applies, so much much is the capital gain gonna be?

  • spal on 26/07/2024 - 13:40
    +3

    To get PPOR within 6 year rule (temporary absence provisions), your partner needs to have first established his residence at the property, and also not claim PPOR on any other property. In this case, he is merely away from the property since the time of ownership. He has not established his PPOR at the subject property. So, IMHO the exemption will not apply. He will have access to 50% discount capital gain.

  • Jake D on 26/07/2024 - 13:40

    Did you own the house you lived in from 2019 - 2024? Do you want to interfere with any possible CGT exemption on that property?

  • Drakesy on 26/07/2024 - 14:45
    +1

    Yolo it
    End up with a huge tax bill

    Put it all on QFF cards.

    WHAT COULD GO WRONG!?

    • Gunnar on 26/07/2024 - 15:00

      I wonder if the OP will be our negative gearing friend in 5 years time?

      • Drakesy on 26/07/2024 - 15:11
        +1

        Next forum post:
        "I claimed CGT exemption for my investment property and ended up with a huge tax bill and fine, how can i write this off against my PPOR?"

        • Gunnar on 26/07/2024 - 15:48

          Maybe ‘Investment property write off’ needs to be a standard poll suggestion next to Bikies

          I do love people who think that complain about taxation write offs impacting them when they make a profit through the sale of the asset they were writing off debt on

  • 1st-Amendment on 26/07/2024 - 15:21
    +7

    We all move out Dec 2018
    property is rented out Jan 2019, official transfer and new bank loan approvals etc finalised in April/May 2019

    So at no point did your partner live in it as an owner?
    In order to be PPOR for CGT, you have to be both an owner and living at the property. It sounds like he was neither.

    transfer date was after the property became a rental l so seems like a grey area

    I can't see how this is grey at all. At no point was he ever a legal owner and resident at the same time. That's pretty black and white IMO.

    • sarahx0x on 26/07/2024 - 16:45

      yes we had already assumed he would be up for CGT but an accountant friend mentioned ownership via defacto which is how I got into this rabbit hole

    • JDMcarfan on 26/07/2024 - 17:01
      +5

      this should be the pinned comment. Came to say the same (also note that PPOR is technically a stamp duty related term, but is used interchangeably with the MRE)

      The ATO has clearly stated requirements for the Main Residence Exemption (MRE), which you can then claim for a further 6 years, after moving out (subject to other conditions).

      Extract from ATO:

      Your main residence (your home) is exempt from CGT if you are an Australian resident and the dwelling:

      has been the home of you, your partner and other dependants for the whole period you have owned it

      OP - note the bold bit. Owned it is the key word of that sentence. You (your partner) may meet the requirements on the ATO to have called the house your main residence until 2018, but never met the requirements to have the exemption applied. Thus, you cannot go claiming the MRE.

      It would've been wise for your family to have consulted an expert before making a transfer like this, as you have shot yourself in the foot. Either could've transferred the whole thing into your name, or to both you and your partner before moving out (for a min of 6 months) and you'd be golden right now. There's no way out of it now unfortunately.

      P.s. I'm also an accountant and have no idea where this friend of yours is getting an ownership by defacto idea from. This is a more divorce/seperation issue, and has nothing to do with CGT.

  • JimmyF on 26/07/2024 - 16:58
    +1

    2024 - we have now sold the property - is my spouse able to claim CGT exemption? Technically the house was his PPOR within 6 year rule however transfer date was after the property became a rental so seems like a grey area. I have had people from the ATO hotline say yes and no about 50/50

    I believe this exemption only applies as long as you don't make another property your PPOR.

    So did you make another place your PPOR? aka buy a place and live in it?

  • Typical16-bitEnjoyer on 26/07/2024 - 17:22
    -2

    Most of the info on here is wrong. Good luck OP lol.

    Just read this comment and ignore the rest. https://www.ozbargain.com.au/comment/15540771/redir

  • larndis on 27/07/2024 - 08:31

    I'm assuming from the comments that neither you or your partner owned any other properties, but if you did this could be relevant

  • Chewy2221 on 27/07/2024 - 08:55

    Private tax ruling from ATO - then you will know exactly where you stand. Good luck

  • lilkid28 on 27/07/2024 - 13:48

    You only rented out in Jan 2019, 6 year period would make it Jan 2025.

  • Vater Woods on 28/07/2024 - 00:37
    +1

    My experience with my accountant is, with Water rate, Gas or Electricity, and driver Licence address on the property on 2019, then, yes.

    But if you can't provide all three, then, bad luck.

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