Chan & Naylor’s Managing Partner of Property & Business Tax Accountants in South West Sydney, Peter Ristevski, discusses capital gains tax in the October 2018 issue of Your Investment Property magazine.
The popular investment magazine invited Peter to answer one of their reader’s queries about capital gains tax and if it would be applicable to their particular situation.
Capital gains tax questions
A query about capital gains tax was asked by Rick whose mother-in-law currently owns a home that she bought in 1967. She no longer lives in the home as she is currently in an aged-care accommodation. She is thinking about renting out her home with the possibility of selling in the future.
Rick would like to know if his mother-in-law does decide to rent out her home and it starts to earn income, would she need to pay CGT if she decides to sell it?
In addition, would she need to move back in her home within six years of first renting it out before disposing of her property to avoid paying capital gains tax?
Peter begins by discussing the benefits of keeping a main residence should one decide to become a resident of an aged-care facility. Aside from higher Centrelink benefits, they will also pay lower aged-care fees. Furthermore, a main residence is indefinitely exempt from capital gains tax.
Since the property was purchased before capital gains tax was implemented on 20 September 1985, also called a pre-capital gains tax asset, it will be exempt from any CGT should she decide to sell her property. Therefore, she does not need to move back into her home within six years after renting it out.
Opportunity from the main residence CGT exemption
In this type of situation, Peter says that this type of exemption represents an opportunity around estate planning and maximising your tax benefits.
From an estate planning’s point of view, a property in this scenario will remain CGT-free if it is sold within two years of the owner’s death. However, they may not want to sell within two years especially if the housing market is weak. Nevertheless, the property will remain CGT-free should they decide to sell after two years as long as the property was not used to produce income.
Seeking out professional tax advice for these types of complicated situations are recommended. Should you need expert tax advice, contact one of our friendly Chan & Naylor tax accountants near you.
Aside from estate planning and capital gains tax advice, have a look at our other accounting and advisory services that we do to help you achieve greater success.
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