CGT - PPOR converted to IP

[pwinne]

Evening all,

I've read a lot on the ATO website, and read a lot here; great posts by all by the way. But am still not sure how this will pan out, so any humble advice would be appreciated. I still plan to see my accountant, but your views would be great regardless!


Settled PPOR 5th March 2003 for 327k - moved in that day
Moved out to live with friend middle of November in 2003
Rented out PPOR end of November 2003
Moved to my now wifes house, early Febuary 2004, my wife owned her home outright - I had no financial ownership in the property.
In October 2007 my wife transferred her property into my name only (to help get a new loan for a bigger house)
We then sold my wifes home and moved to it in November 2007.
I'm now selling my original PPOR from back in 2003 - expected sale is 590k

Whats the CGT deal here??

Can I continue to consider my old PPOR as my original residence until my wife transferred her house into my name only?

The way I see it, rough figures

Valuation of my old PPOR in November 2007 was say 480k, it sells for 580k in July 2010 CGT liability is 100k, apply the 50% CGT discount and tax due is 50k

Is that correct?

 

[pwinne]

OK reading more, it seems I needed to have made a 'choice' on one of the properties that would make it CGT exempt.. I don't even recall discussing this with my accountant.

Either way, is this now set in stone, or can I go back, have my 2007-2008 return re-assesed and pay CGT on house I owned for 8 weeks? Because the CGT will be nothing... virtually



Cheers

 

[jrc]

Your scenario has ignored the fact that it appears that you and your wife have claimed her house for the period from Feb 2004 to late 2007 as the PPOR for both of you.

Your financial interest or lack thereof in your wife's house from Feb 2004 to Oct 2007 is irrelevant as far as the wording of the legislation.

Briefly you and your wife could amend your and her returns. This may give you some tax saving but it will also result in taxation consequences and possible interest and penalties for your wife.

If your wife acquired her house before CGT was introduced in SEp 1985 then there would be no consequences.

Next the value of your former PPOR is based on its value when you started getting income from it ie by early 2004 rather than late 2007.

After the 50% CGT discount, your marginal tax rate is applied to the remaining 50% so in your example if your CGT was $100,000, after the rebate your gain included in your tax return is $50,000 and you would pay a maximum of approximately $24,000 tax if your tax rate was the highest marginal rate.

Finally if your wife's house was transferred to you in 2007 then it would seem your/her professional advisers would have done this on the basis it was the matrimonial PPOR and exempt from CGT and that this would have been discussed. No doubt you did not go into all your other circumstances.

Also what did your accountant do wrong. Your wife's accountant may hvae been remiss in not obtaining an acknowledgment from you that her house was the PPOR of you both.

 

[pwinne]

Your scenario has ignored the fact that it appears that you and your wife have claimed her house for the period from Feb 2004 to late 2007 as the PPOR for both of you.

Your financial interest or lack thereof in your wife's house from Feb 2004 to Oct 2007 is irrelevant as far as the wording of the legislation.

Briefly you and your wife could amend your and her returns. This may give you some tax saving but it will also result in taxation consequences and possible interest and penalties for your wife.

If your wife acquired her house before CGT was introduced in SEp 1985 then there would be no consequences.

Next the value of your former PPOR is based on its value when you started getting income from it ie by early 2004 rather than late 2007.

After the 50% CGT discount, your marginal tax rate is applied to the remaining 50% so in your example if your CGT was $100,000, after the rebate your gain included in your tax return is $50,000 and you would pay a maximum of approximately $24,000 tax if your tax rate was the highest marginal rate.

Finally if your wife's house was transferred to you in 2007 then it would seem your/her professional advisers would have done this on the basis it was the matrimonial PPOR and exempt from CGT and that this would have been discussed. No doubt you did not go into all your other circumstances.

Also what did your accountant do wrong. Your wife's accountant may hvae been remiss in not obtaining an acknowledgment from you that her house was the PPOR of you both.

OK thanks for responding.. what really answers the question I guess is that you can have only 1 PPOR per couple (de-facto or not)

The way I read the legislation, you can choose to claim a partial exemption until you obtain a new PPOR, which on paper was not until November 2007. But as I now understand it that was I became a couple with my now wife.
However as you have pointed out the house that it was considered my PPOR when we became a couple.

Cheers

 

[monalisa]

Choice is at the time of lodging your return. Tax leg provides that the way the taxpayer prepares their income tax return is sufficient evidence of the making of the choice.