Compulsory Land Acquisition & Tax?

Two important CGT issues need explaining first. CGT is determined when a CGT event occurs. ie a sale. Normally the main residence exemption applies an exemption to the amount of the CGT profit made using the rules relating to the CGT event for say a disposal. So the MRE = No tax.

With a compulsory acquisition a rollover occurs. This allows the CGT event to be disregarded as if it never occurred. However if its exempt the deferred rollover sum is --- Zero. The 6 year rule means no CGT. A rollover is sued to DEFER CGT not change it. There is jack to rollover. You cant ignore an exemption as such.

I don't understand what you are seeking ??

Personal tax advice is required.
 
Hi Paul,

Thank you very much for your prompt response.

You have cleared up my confusion about the understanding of CGT , disposal of assets and the rollovers now.

1. With the CGT asset rollovers, do we need to fill in any forms or we just do recordkeeping of the asset acqusition ?

2. Would you be able to further clarify when you said =
"However if its exempt the deferred rollover sum is --- Zero..... There is jack to rollover. You cant ignore an exemption as such."

3. Would you be able to inform me your consultation fees, Paul ?
 
If you had purchased another dwelling and were living in it then you could refrain from electing the old dwelling as your main residence under the 6 year absence concession.

Provided you reinvest the disposal proceeds on one or more new IPs you can defer CGT on the old property using the rollover election and simultaneously access the main residence exemption for your current dwelling.

You would need to calculate which is the best outcome, with the help of an adviser.
 
1. I'm not sure there is a rollover (see Pt 2). If the CGT profit is exempt then there is nothing to rollover. But to answer the general tax issue - A rollover election is merely a choice. The way you prepare the tax return is the rollover. No special forms. - Lodging a return determines the decision.

2. The property was a former PPOR and as such provided you do not acquire AND reside in another CGT asset which you could ELECT to be eligible for the main residence exemption then the 6 year MRE applies to your former PPOR so that the CGT profit calculated is 100% exempt. Not a maybe. You cant choose to just ignore the exemption. Taxpayers always try to disregard the exemption where a CGT loss arises...Same principles. Its exempt. Therefore if 100% of any profit on the former POR is exempt there is nothing to rollover.

3. Contact me using my direct email below.

Now some tax advisers will say I'm wrong about the MRE and that its a choice for the MRE. That's absolutely true !! Why do I say otherwise and use the 6 year absence rule instead ?? I didnt want to confuse you. I say its exempt as NOBODY defers CGT if an exemption applies. Its like a choice between tax or no tax...Which do you choose ?? The tax free option is always correct. You would take the 100% exemption now AND also for the subsequent purchase if its is also eligible. If not you have legally minimised tax. A rollover would mean you defer the taxing of some CGT profit. It wont later be capable of exemption !! Why pay tax when you don't have to.
 
Now some tax advisers will say I'm wrong about the MRE and that its a choice for the MRE. That's absolutely true !! Why do I say otherwise and use the 6 year absence rule instead ?? I didnt want to confuse you. I say its exempt as NOBODY defers CGT if an exemption applies. Its like a choice between tax or no tax...Which do you choose ?? The tax free option is always correct. You would take the 100% exemption now AND also for the subsequent purchase if its is also eligible. If not you have legally minimised tax. A rollover would mean you defer the taxing of some CGT profit. It wont later be capable of exemption !! Why pay tax when you don't have to.

Read the first sentence of my response above.

If the taxpayer also occupies another dwelling they own during the absence then there is a potential opportunity by not using the s.118-145 absence election.

Full disclosure is required before advice can be given.
 
Thanks Paul & Rob for your response.

Apologize that I haven't mentioned that after the compensation , I will be settling on another property , which I would have it as IP for next 2 years , then leaving in there afterwards as PPOR

Does that mean that it is possible to the below ?
- claim the CGT profit exemption on 1st property because of MRE
- Then claiming the CGT profit exemption on 2nd property because of MRE too (but I will be living in the second property at a later stage)
 
1. Correct. (Rule 1 is to seek exemption)
2. Incorrect sort of. Its only exempt if you reside in it as soon as practicable after acquisition. You could move on in a week or two....It would then be eligible for the 6 year absence rule. And in just under 6 years do it again.

The sticking point for the MRE is that it only commences when it is occupied as your main residence. You cant choose for it to be a residence if you haven't occupied it. As Rob points out its necessary to look at your entire residency issues before making conclusions too. The MRE cant be double dipped....Common problem for a aussie family working OS is they may keep the 6yr CGT exemption on the former home BUT if they acquire foreign property and occupy it they lose the 6yr rule. Strategy can be to rent and not buy.

In your example a pro-rata approach is the outcome. You would be exempt for days occupied v's being taxed for those when its IP. If you can legitimately and fully reside from day 1 even for a short period (yes - You may be paying rent for the overlap !!) the tax outcomes may be well worth the cost and effort. But you do have to really fully move in.
 
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