Here's a slightly off kilter question for you financial boffins out there.
Not sure if anyone might know, but it doesn't hurt to ask.
I have a property I've been living in for 20 years. It's solely in my name but I live there with my defacto partner (1999 – Jun 2010).
We split up almost 12 months ago, but have recently decided to give it another go and she's moved back in (long story,
not going into it, but fair to say we have had a genuine period apart in the last 12 months).It was a serious split (not just done for taxation reasons).
As part of the reconciliation process we've decided that we want to move out of the home I own and into another house that we both will own (clean break, existing house has memories, etc). We will most like buy this house in both our names.
If we both move into the new house, and I rent out mine, can I continue to claim my house as PPOR for a period of time while we live in the new house? Because she's living in the new house, she'd obviously look at that as her PPOR.
It won't be the full 6 years, more like 12 – 18 months while we sort "us" out. Then we'll (likely) look at selling the house I own and using the proceeds to pay off the new house.
We are re-establishing a relationship that fell apart for almost 12 months, but do we immediately go back to being de facto for property purposes and CGT?
I realise that I would need to get official advice from somewhere, but has anyone any idea who I'd ask? Tax office says it's a centrelink issue, centrelink says we're after tax advice.
Anyone here have any (general) ideas?
Generally, if you are living together in a 'domestic relationship', then you are only entitled to one PPOR between the two of you. I don't think there is, off the top of my head, an amount of time living together that then qualifies you as a domestic relationship.
If you had different PPOR's for the 12-18 months, your partners share of the new place would be exempt under the main residence rules. Your share would be subject to CGT for the period where it isn't your PPOR.
For your current place, as you own more than 50%, you would be assessed on half of your gain, from the date your partner moves into the new house until date of sale. If it's inly 12 -18 months, it won't be much.
Thanks. Kind of figured as much, but it never hurts to ask.
Subsequent question: I'm figuring that property prices won't move upward much in the next 12 months much, and I will be getting a current 2011 valuation on the property in a few weeks.
Would that establish the basis for its "cost" value when I move out and use the difference between that and the final price as the CGT? Or would I simply use "sale price less original purchase place" x percentage of time it was rented?
naughtyj wrote:Thanks. Kind of figured as much, but it never hurts to ask.Subsequent question: I'm figuring that property prices won't move upward much in the next 12 months much, and I will be getting a current 2011 valuation on the property in a few weeks.
Would that establish the basis for its "cost" value when I move out and use the difference between that and the final price as the CGT? Or would I simply use "sale price less original purchase place" x percentage of time it was rented?
You would need a valuation to be done, (s118.192 ITAA 1997)
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
A Domestic Partnership and its legal paramenters are set out differently from state to state. For example, in South Australia it is the Domestic Partnership Agreement Act 1996. In some states a relationship is considered de facto sooner if you simply get a joint bank account or a utilities bill in joint names -i.e. Victoria. Due to the fact that you have had a 12 month split will also affect the legal definition of the present legal standing of your domestic partnership and I would suggest that you speak to either a lawyer or a tax accountant who specialises in property.
What Anthony says is true, but Tax is covered by Commonwealth Legislation such as the Income Tax Assessment Acts 1936 and 1997. This means the definition of spouse in this Act is the one to go by for tax reasons, :
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s995.1.html#spouse
"spouse" of an individual includes:
(a) another individual (whether of the same sex or a different sex) with whom the individual is in a relationship that is registered under a * State law or * Territory law prescribed for the purposes of section 22B of the Acts Interpretation Act 1901 as a kind of relationship prescribed for the purposes of that section; and
(b) another individual who, although not legally married to the individual, lives with the individual on a genuine domestic basis in a relationship as a couple.
===
Note that "genuine domestic basis in a relationship as a couple" is not defined.
Also note that s 118.179 covers the spouse having a different main residence and there is special treatment for "a spouse living permanently separately and apart from you"
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.170.htmlTerryw | 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
Terryw wrote:naughtyj wrote:Thanks. Kind of figured as much, but it never hurts to ask.Subsequent question: I'm figuring that property prices won't move upward much in the next 12 months much, and I will be getting a current 2011 valuation on the property in a few weeks.
Would that establish the basis for its "cost" value when I move out and use the difference between that and the final price as the CGT? Or would I simply use "sale price less original purchase place" x percentage of time it was rented?
You would need a valuation to be done, (s118.192 ITAA 1997)
I agree with Terry that the valuation needs to be done.
But there is an exeption to this rule. If you sold your old home within 6 years of renting it out it is still CGT free depening on how you elect to use your exemption. See ato.gov.au and search for 36910 where this is discussed in detail.
But this would mean your new home could not be 100% CGT exempt. And based on your market outlook and for the sake of simplicity with your joint home the valuation method looks like a winner.
I just wanted to point out that the main residence exemption often gives scope for choice, in case that helps.
I hope the reconciliation works out well!
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