CGT and Stamp duty after living in previously rented property

[timbo]

Hi I am wondering what the implications tax wise of the following scenarios.

If I were to sell our existing house and move into a investment property. The investment property has been rented for about 6 years, and has aprox doubled in value.


1. If we were to sell this previously rented house after say 10 years

2. If house was passed on to children in will.

Thanks Tim

[DaleGG]

Hi Tim

Based on the current laws....which could well change within the next 10 years....

The sale of your home (current IP) would be subject to CGT. The tax would be based on the profit divided by the length of time the property has been owned and then multplied by the time it was owned as an IP.

There are no tax problems in leaving a house to your children in your will. However, if they sell the house then CGT is an issue for them and they will need information about when you bought it and for how much etc

May I suggest that you have a meeting with your solicitor and review your wills and at the same time discuss the issues with your accountant?

Dale

Hi I am wondering what the implications tax wise of the following scenarios.

If I were to sell our existing house and move into a investment property. The investment property has been rented for about 6 years, and has aprox doubled in value.


1. If we were to sell this previously rented house after say 10 years

2. If house was passed on to children in will.

Thanks Tim
:eek:

[timbo]

Hi Dale

I am aware of several people, including real estate agents, who have moved into investment houses, and then sold later with no consequences.

As only required to keep records for tax for 7 years, I wondered how it would be picked up, if property was sold later on.

Cheers

[coastymike]

Timbo,

With respect to an asset sold and subject to Capital Gains Tax you must retain these records until the end of five years after it becomes certain that no further CGT event can happen for which the records would be relevant.

Like any transaction that result in a capital gain or capital loss if you do not report this in your tax return then it will only be detected upon a tax audit (or if someone dobs you in - seen this happen in marriage breakups or disputes between friends). You are running a risk of getting an audit and then being hit with penalties plus interest.

If you go over the 5 year period and you don't get audited then yes you are correct you have probably got away with it. But remember that what you are advocating is tax evasion and subject to severe penalties. Something I would not recommend for any of my clients.

How will they detect it you ask ? Well the ATO can match (and is currently doing so) property and land titles transfers (as recorded by the Land Titles Office) and if you have sold a property, claimed interest and other deductions and then not recorded a capital gain or loss you may be subject to a tax audit.

Without knowing the circumstances of these real estate agents it is difficult to comment but it sounds like they are just not reporting the event (tax evasion) rather than anything else.

[Mry]

I am aware of several people, including real estate agents, who have moved into investment houses, and then sold later with no consequences.

CoastMike is correct. Just because you don't include it in your tax return and get away with it doesn't make it right. Those real estate agents are toeing a dangerous line.