Missed it by that much.... CGT Question!

Dear learned ones.
I will be booking into see a tax specialist with my my mum but would like to float the question first with the Somersoft community. Love this site!

Mum purchased the family home for $55,000 on 1 November 1985 apparently just 2 months after CGT was introduced on 1 September 1985 

Mum lived in this house through to June 2003 when she moved to her new main residence and has been renting out the initial property since. (Intermittently) Family home would have been about $220,000 at this time.

Since 2003 my brother and I have been paying the mortgage on the family home with mum receiving the rent for her new home. The deal being that after 10 years we would transfer the house into our name. ( Great mum!)

We are now looking to make this transfer and the bank has valued the home at $300,000 and $80,000 is still oweing on the house. We are aware of the requirement to pay the stamp duty on this transfer.

Mum is on minimum income working and no pension. Is 63 though and hoping to apply for a pension in a couple of years.

Question. Approx what CGT would mum be required to pay for the family home, when we transfer this.

Any advice for me and my brother?

Thank you in advance

PL
 
No tax lawyer here, but I'd say a little.

$300 less the $220 back in 2003 is $80K.

Halved to $40K and then added to income.

If she's earning say $37K she'd pay about $13.6K.

But there might be some other exemptions WRT timing etc when she moved and started claiming the new PPOR etc.

Should also seek advice regarding retirement planning etc in transferring this sized asset.
 
Thanks Hotrod very prompt response!

Are there other deductions she can make to reduce that bill?

That was less than I thought it might be, seems a fairly straight forward calculation as well. We thought we might need to sell the property if the CGT was too high and mum gift our share to us. This though would probably effect her pension etc in the future

Thanks again
 
A) When was the contract to acquire the original house signed ?

This may be more relevant than settlement date for pre-CGT status.

B) CGT event B1 might have occurred in 2003 and she could have 100% main residence exemption.

The problem is that the sons do not appear to have use or enjoyment since the mother is still receiving income from the property in the manner of a beneficial owner.

C) Was she claiming mortgage interest expense which she did not incur or was reimbursed for ? Was she increasing cost base by interest expenditure that was either deducted or recouped ?

Were the sons claiming interest expense deductions for purposes not related to earning their assessable income ?

What a lot of questions from so few facts.

If this reached litigation with the ATO then it could cost a lot more than any CGT.

Sadly, Centrelink gifting timing does not align with tax law, especially some CGT events.

In addition to advice from a registered tax adviser, possibly refer to a legal practitioner ?

Cheers,

Rob
 
Rob's correct - unfortunately you have not provided sufficient detailed information. But then you are just after some information on issues to discuss with your accountant. I am also a little confused.

You say that mum moved from family home (old home) to new main residence (new home) in 2003.

But then you say that your mum has been receiving rent for the new home? I assume that you mean that your mum receives the rent for the old house? I assume that it is the old house which is being transferred to you and I assume this is being done to increase the pension benefits to your mum?

Your mum could choose to treat the old house as her PPOR for 6 years from 2003 thus reducing the CGT proportionally (i.e.4/10th the gain = about $16K after the general discount). Taxable capital gain gets added to her other taxable income in that year so tax could be minimal.

This may not affect the CGT free status of the new house as there is no CGT as long as she was living in the new house when she dies.

I assume your mum will not receive any moneys from the sale so effectively she is gifting you its value so you would need to look at the Centrelink gifting rules. Basically the amount over $10,000 is considered a deprived asset for 5 years and she would be deemed to still have that money for the income and assets tests. Alternatively your mum could sell the old house and use the proceeds to make some great improvements on her new house with no pension effect. When she dies the house can be transferred to you with no stamp duty or CGT. Just giving you some things to consider.

Good example of "it would have been useful to consult a tax specialist when the deal was done in 2003". Highly probable that you could have avoided CGT and pension issues. Hindsight is such a great attribute!
 
Transfer of title from mum will trigger an intrusive Centrelink review later when she applies for pension.

This issue needs broad advice before proceeding. A tax guy with VERY SOLID Centrelink knowledge is a must here. Call me - I am the tax and my colleague is the Centrelink guy. We do this stuff all time as part of our aged care services. In my experience we get asked this Q a lot. In most cases it doesnt work as someone is doing things at non-market values and mum will lose benefits one day. Often there is a plan B.

CGT calcs are required but need some details. The stamp duty calc is another that will be important ! One thing you might have overlooked is that a super contribution could be considered by mum. Obviously its resi and thats a problem to transfer the house but but after sale if mum banked the proceeds to super there could be tax savings v's outside super ?
 
Thank you all, certainly a lot to think about and yes wish we had of looked into it more when first striking the deal.

Rob. The date of contract was 1 November 1985 for the family home. The date of settlement is not on the record provided by the land titles office.
Gary your assumptions are correct in that it is the old house (family home) that is looking at being transferred to us. The rent from the old house has been going to mum for the last 10 years to assist with her current property.

Basically the idea mum proposed 10 years ago was that we, the brothers, would take over the mortgage of approx $100,000 on the family home and provide her with 10 years rent from that property. The house would then be transferred to our names as this was to equate to a purchase This was not formalised but a family agreement. The pension etc was never even a consideration at that time but now I do worry about it for her given the period of life she is entering into.
Unfortunately for us we probably should have been a bit smarter in how this was all arranged!
 
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