CGT

Terryw wrote:

Here is an article I wrote a while back:
The short answer is that you get some CGT relief as the period subject to CGT is apportioned.
Example
Bic Dong purchased a home in 2000 and moved in straight away. It is a small residential block and is his main residence and only property.
On 01 Jan 2004, Bic moves out. He ends up renting a property while renting out his main residence. Mr. Dong then sells the property in 2015.
What happens with the main residence exemption? Because Dong was absent for more than 6 years – he was away for 11 years in total.
Bic must first work out the value of the property when it was first used to produce income which occurred on 01 Jan 2004. He can do this by employing a valuer who will estimate what it was worth back at that point in time.
Then he must work out how long the property was rented for (in days to be exact). 2004 to 2015 is 11 years (approx.). 6 of those 11 years are able to be counted as the main residence. Therefore 6/11th of the gain will be exempt and 5/11ths will be subject to tax.
Let’s add in some values:
2000 $200,000 purchase price
2004 $300,000 value at the date he moved out
2015 $800,000
The capital gain to work the tax out on is $800,000 – $300,000 = $500,000
Some expense can be used to reduce this – agents fees on sale, conveyance on the sale etc, but not stamp duty on the purchase or other purchase costs because Bic is deemed to have acquired the property in 2004 at its value then (s118-192 ITAA97). Also, capital works deductions would need to be added back.
Assuming all these amounts to $30,000 the gain would be $480,000
Then the 50% CGT discount will be applied. $480,000 x 50% = $240,000
Only 5/11ths of this would be taxable = $109,090
$109,090 is the taxable gain that would be added to Bic’s other taxable income for the year. The maximum tax he would pay on this would be $53,454 but he may pay much less if his other income was very low.
Had Bic moved back in before 01 Jan 2010 and then later moved out again, he would not have paid any CGT tax. He didn’t do this because he didn’t want the hassle of having to move.
Had Bic decided not to keep claiming the property as his main residence after moving out (e.g. because he claimed another property) then the cost base for CGT purposes would have been the value at the time of moving out which was $300,000
The CG would have been $800,000 – $300,000 = $500,000
Reduce this by the selling costs of $30,000
$480,000 gain
$240,000 after applying the 50% CGT discount because held longer than 12 months.
Tax would be less than $240,000 x 49% (top rate plus Medicare) = $117,600
See
ATO ID 2003/1113
Income Tax
Capital gains tax: main residence exemption – interaction between the ‘absence’ rule and the ‘first used to produce income’ rule
ATO ID 2003/1113 – Capital gains tax: main residence exemption – interaction between the ‘absence’ rule and the ‘first used to produce income’ rule
Section 118-192 of the Income Tax Assessment Act 1997
INCOME TAX ASSESSMENT ACT 1997 – SECT 118.192 Special rule for first use to produce income
Section 118-145 of the Income Tax Assessment Act 1997
INCOME TAX ASSESSMENT ACT 1997 – SECT 118.145 Absences

What would happen if Bic moved back in after 01 Jan 2010, say 01 Jan 2011. Does he have to apply 1/11 or 4/11 to his gin?

That is, if you are absent for more then 6 years but move back in again, can you get benefit of a new 6 year period from the moment you move back in again?

• This reply was modified 7 years, 2 months ago by  propertyboy.

Benny wrote:

Hi propertyboy,

Also, why is that couple making such a big deal? Why would they rush to sell it and not hold and then move back and sell unless they never planned to move back? If they were never planning on moving back they would be hit with the 6 year CGT exemption rule anyway so would then start paying CGT. Is there something I am missing in relation to why there is such outrage?

Some of the words seem to signify GREAT change (and, in my book, rather draconian change). This quote below from the article, if true, would amount to a huge miscarriage for those expats:-

Further, the Morrison government’s new tax bill will apply retrospectively to cover the capital gain accumulated for the entire time the property is owned.

So, that could mean that someone buys a property in their early working life, lives in it for 15 years, then they go overseas, and sell it while away. That would mean NO PPOR benefit for those 15 years when they DID live in Australia, with that as their home. Sounds quite unfair to me. The Professor mentioned makes a similar statement – and he happens to be a “senior tax counsel at The Tax Institute” so one would think he’d have a pretty good idea of what is going on, eh? It just sounds so wrong – I hope someone in the Senate picks up on this huge injustice and forces a rewrite of the Bill for better effect. Or has it already been passed? I dunno !!! Anyone have a view? Benny PS For me, this is a huge reminder of the old saying “We just don’t know how much we don’t know” – and it is these “unknowings” that often bring us undone. This particular expat happened upon it by chance – what if he hadn’t?

Before the rule change if they lived in the house for 15 years then moved overseas, as long as they were non resident for < 6 years, they could have sold whilst overseas and paid no CGT? Is that the key change?