Hi All,
My situation
1 house in my name (this is now the family home)
1 unit in wifes name (this was her PPoR before we met, she has not lived in it for 5.5 years, now rented out)My question,
can we sell the unit (wife's old PPor) and claim the PPoR 6yr CGT exemption.
The house we live in in just in my name ?
My hope would be to see the unit (no CGT), pay off house mortgage there buy property (interest only) in our family trust name.
thanks
MattI shall point you to the following sites:
CGT implication if you own more than 1 property:
http://www.ato.gov.au/individuals/content.asp?doc=/content/63517.htm&pc=001/002/026/016/003&mnu=&mfp=&st=&cy=1When your spouse or children live in a different home to you:
http://www.ato.gov.au/individuals/content.asp?doc=/content/36893.htmHope it helps,
Kennythanks, I saw those but got even more confused,
my wife and I both own 1 property each. And still live together in the property I own.
I assume.
If my wife sells her property, claims the 6yr rule, she wil not pay CGT.
If I sell my property, I claim it as PPoR and not pay CGT.Is this true ?
I have rang the ATO will let you know what they say
just had the call back from the ATO and my assumption was correct.
We culd both sell our properties now and not pay CGT on either.
As both properties are in different name and we both only hold 1 property it's all good.
Now to convince the wife.
1) Sell her place
2) pay off mortgage of PPoR (preference would be to have the redraw still available but no outstanding debt (0 interest))
3) buy 2 or 3 IP's (interest only loan) in our family trust (using us (unincumbered PPoR) as guarentee)Now need to find a finance broker to get the ball rolling for LOC or some finance structure (fro family trust)
cheers
MattThanks for the feedback Matt! Appreciate the confirmation.
However, I have to say I was a bit surprised by ATO’s response?!I guess it depends on the timing of when your partner legally became your wife (de facto law applies). If it is just recent, then ATO’s response would be correct.
The ATO treats a couple as one unit for many of their CGT exemptions and discounts.
I would imagine one couple (when they became a couple), can only elect one property to be their main residence (or if you choose to have different main resident, you apportion the interest) at any one timeThe 6 year CGT exemption rule only applies if the property is in fact elected to be your partner’s main resident.
When your partner became your wife, she will have “interest” in two PPORs, and you and your spouse must either:
a, choose one of the homes as the main residence for both of you for the period, or
b, nominate the different homes as your main residences for the period.In that case, no matter how you and your wife choose, some CGT will need to be paid when CGT events (selling the properties) occurs to both properties.
From a tax payer’s point of view, when the ATO does an audit on your tax returns, they can probably identify a couple having two PPOR by linking the spouse details, even when the two properties are in separate names.
However, at the end of the day, ATO has the discretion.
So it was very wise of you to have obtained an answer from ATO.My recommendation is that you get that in writing or a private ruling!
Good luck with the pillow talk
KennyHi Kenny,I think if my wife had 2 properties in her name then she would be hit with CGT on one of them,
So what we are saying is
her PPoR is A (last 5,5 years she earns income)
She can sell and claim the 6 yr,My place (not in her name) is my PPoR so I can sell with no CGT.
The ATO only seemed interested in whose name the assets were in and did they start as non income earning (i.e PPoR).
Then you may set that as you PPoR when you sell it. As both properties are in different names, it is only the property holder who gets hit with CG. e.g if we sold her place she would pay CGT, she could not pass it on to me or the kids to minimise the tax.Thanks for that Matt.
Again, make sure you get that in writing.
I will
just thought of another option.
sell the unit to the family trust, we will have a stamp duty cost but it will give me the same outcome. No Mortgage on PPoR and income producing assets in trust.
mmm, might be easier to convice wife. I assume there is no arms length type stuff with family trusts ?
Matt,
I’m assuming you are referring to the Arms Length rule SMSF needs to follow. (ie. Investments by a SMSF must be made and kept on an arm’s length basis. This means the transactions must be on a full commercial basis)?
No, it does not apply to family trust.
Cheers,
KennyHi Kenny,
thanks that's exaclty what I was meaning.
I am with Kenny on this one. Couples can only have one main residence between them. So unless you recently became spouses (married of defacto) then I think the ATO is wrong.
Here is the legislation, s118-170 ITAA.
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.170.html
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I will ring again, get a name etc..
I think the main point is each asset is in only one name so the CG Event will affect the owner of the asset. i.e if the unit was in her name and the house was in both our names, then if she claimed the PPoR on the unit we would get hit with CGT on the house.
Ok rang again,
here's the numbers if you would like to try,
132861
2
3
1
# (no TFN)Spoke with Greg.
As I assumed the assets are in different names so they don't affect the other one. The important thing is my wifes property was not used as an income earning asset originally, it was her PPoR untill 5.5 yrs ago when we got hitched. All the examples they give are related to the assets being in both names.
cheers
MattIf you nominate different homes (as your PPoR) for the period and you own 50% or less of the home you have nominated, you qualify for an exemption for your share. If you own more than 50%, your share is exempt for half the period you and your spouse had different homes.
http://www.ato.gov.au/individuals/content.asp?doc=/content/36893.htmAs your wifes ownership percentage of her house is greater than 50%, according to this, she would only be exempt from half of the CGT.
The other thing to remember is, according to this, YOU would also be up for 50% CGT on your PPoR, if your wife nominates her property as her PPOR. If she nominates your property, there would be no CGT on your property at time of sale, but hers would be up for 100% of the time it was not her PPOR, and income producing (ie 5.5 years)
I'm with Terry, I think, the ATO has got it wrong.
the above is only true (according to the ATO) if the properties are in joint names.
I own nothing of my wifes unit and she owns nothing of my house.
From the same link as mentioned above
This rule applies to each home spouses own, whether they have sole ownership or own the home jointly (either as joint tenants or tenants in common).
we don't live in different homes, we are not seperated. The link you refer to is (When your spouse or children live in a different home to you).
What do I need to do get something in writing from the Tax man ?
I realise that is the heading on the link, but the information doesn't read that way.
So if you and your spouse live in separate houses, you would be up for a portion of capital gains tax on each house, but if you live together, both houses are CGT free? That doesn't make sense to me.
The ATO info talks about nominating a house as your PPOR. You don't need to be living in the house for it to be your PPOR, so I think the heading is misleading.
But if you can get the ATO to put in writing that it is CGT free, then good luck to you! Here's the info re: Private Rulings
Dan42 wrote:I realise that is the heading on the link, but the information doesn't read that way.So if you and your spouse live in separate houses, you would be up for a portion of capital gains tax on each house, but if you live together, both houses are CGT free? That doesn't make sense to me.
The ATO info talks about nominating a house as your PPOR. You don't need to be living in the house for it to be your PPOR, so I think the heading is misleading.
But if you can get the ATO to put in writing that it is CGT free, then good luck to you! Here's the info re: Private Rulings
we had a similar issue. we got a private ruling. takes along time and many documents. better to get clarity. every case is different. regards.
Pully,
Do you mind sharing your scenario and the ATO judgement? (or just point us to your PR in the register). Thanks
Matt,
The ATO has strictly forbidden people in the same immediate family (including spouse and dependent kids) to own multiple PPORs even with different name on the property. For example, imagine a family of 5 owning 2 main residents and 3 holiday houses? So I don’t accept ATO’s argument “assets are in different names so they don’t affect the other one”.
The only difference about that scenario with you, is that your wife got the PPOR before you guys got hitched.
But this changed as soon as your marriage status legally changed.
Unless there is any exemption that I’m not aware of.Your best option is to apply for a Private Ruling (see Dan42’s link)
Private rulings are binding to ATO, so if ATO has granted you permission to sell without incurring CGT, they cannot ask for it later down the track. Depending on how quickly you provide information to the ATO, it takes up to 28-60 days.
Note, you cannot rely on other people’s Private Rulings.Sorry to burst your bubble, but better safe than sorry
Good luck
Kenny
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