How to pay the least Capital Gains tax in my case?

fatboyslim on 08/09/2016 - 15:10

Bought property around 3 yrs ago under my personal name. Since then got married n planning to move into property soon say in next year. At the same time, we wish to pocket the gain in the rising price n move to another better suburb in a few years time say in 2020.

So the property has been under my personal name as an investment for approx 3 yrs. Then if we say choose to make it our PPoR for another 3 years then sell it, how may i minimise the Capital gains tax?

If i add my wife's name when we move in next year, will i able to further split the tax?

Thanks in advance for any comments. B4 all the bashing, I know im best off seeking professional advice but would like to hear what people have to say 1st.

Financial

Comments

  • whooah1979 on 08/09/2016 - 15:19
    +3

    we wish to pocket the gain in the rising price n move to another better suburb in a few years time say in 2020.

    Why sell? Keep it and buy another property .

    • Stewardo on 08/09/2016 - 18:31
      +2

      Couldn't agree more, refinance the original use the equity as deposit to buy another modest house, then in ten years do it again, consolidating and upgrading will give you a nicer house short term, but would put you back financially.

  • fatboyslim on 08/09/2016 - 15:31
    +1

    We would like to upgrade to a better PPoR in a better suburb. If we keep then we might not afford that new property due to limited budget

  • [Deactivated] on 08/09/2016 - 15:37
    +1

    You can't add your wife's name, unless u want to restamp duty it.

    You only need to decide which is your ppor when you declare your cgt.
    If you declared it ppor, the other property cannot be ppor when you sell it during that period. The tax will be prorated

    • charzy on 08/09/2016 - 16:04

      So does that mean you can declare PPOR in rectrospect when you sell?

      • [Deactivated] on 08/09/2016 - 16:06

        yes you declare when you sell.
        you can only have one ppor in any given period.

        So the dilemma when you sell is: will this property profit higher than the other property that you will sell in the future.

    • sabracad on 09/09/2016 - 19:37

      Depends on the state - generally exempt from duty in Qld if main residence.

  • fatboyslim on 08/09/2016 - 15:45

    If i plan to add my wifes name, it will happen when we move in as stamping would only be $50 not the full amount. However if it makes no difference in the tax that ill need to pay, then i wont do it.

    • [Deactivated] on 08/09/2016 - 16:12

      No way, only $50?

      "adding your wife's name". By this you mean change the ownership of your property to 50-50 right? That requires solicitor to do it, and restamping too

    • JetLi on 08/09/2016 - 16:14
      +1

      stamp duty is a state tax, CGT is a federal tax, to my understanding, adding your wife's name to the title is equivalent to selling 50% of the property to your wife, which will attract CGT, so it would be a pointless exercise.

      • fatboyslim on 08/09/2016 - 16:18

        Apparently i get a concessional rate once i make it my PPoR. And yes, the stamp duty is 50 + solicitors fee + valuation fee

        • JetLi on 08/09/2016 - 16:20

          Not when it was previously a rental property before it became your PPoR, it would be prorated as fm said above, which would mean majority of gain is taxable.

        • fatboyslim on 08/09/2016 - 16:57

          @JetLi:
          So when will the concessional rate applies? Onlynif it was my PPoR fr day 1?

        • JetLi on 08/09/2016 - 16:59
          -1

          @fatboyslim: i believe so

  • scoobydoodledoo on 08/09/2016 - 16:34
    +4

    Here's some general advice (but I am a tax professional):

    If the house is in your name solely at the time you sell it:

    1) first 3 years it was a investment property, capital gains (CGT) will apply to it. This cannot be reduced under the law.
    2) the period you then move in and live in it can qualify for the CGT PPoR exemption.
    3) if you ever move out again and rent it again, you can continue the CGT PPoR exemption for the rental period for up to 6 years. But if you choose to treat this property at the time of sale as your PPoR for that rental period (of up to 6 years), you cannot treat any other property as your PPoR for the same overlap in ownership period when you own both property concurrently.
    so example 1: bought property 2013 (say 500K) , moved in 2016, live there till 2020, then sell 2020 (say 950K):
    the CGT is (approx) = time not PPoR/total ownership period = 3 years/7 years x(sale price - cost of house) x 50% CGT discount = 3/7 x (950-500K) x 50% = 96.4K capital gains in your name

    so example 2: bought property 2013 (say 500K) , moved in 2016, live there till 2020, then rent out for 4 years, sell 2024 (say 1.2M):
    the CGT is (approx) = time not PPoR/total ownership period = 3 years/11 years x(sale price - cost of house) x 50% CGT discount = 3/11 x (1.2M-500K) x 50% = 95.4K capital gains in your name (the gain is lower even though you sold for more as the fraction that the house was not your PPoR has decreased from 3/7 to 3/11). But note the period of 4 year rental you can treat as your PPoR but if you do so and have another house during that same period you cant treat that house for those for 4 years as your PPoR as you are using the PPoR on this one. If you use your PPoR of the new house then you cant get it on this one.

    If you transfer 1/2 the house to your spouse now:

    1) at the time of transfer you will have a capital gains on half at the market value but you can apply the 50% CGT discount on the gain: so if property is worth 700K now then you have deemed to have sold 1/2 to her for 350K less the cost of 1/2 of what you paid (as per above example) $250 = $100K gain x 50% = 50K capital gain in your name.

    2) Your spouse will now own half and if you both move into the house and live then then sell it later or live in it then rent it out for less than years and sell it then she has no capital gain on her half as the property from the time she owned her half is her PPoR (assuming you don't buy another PPoR and then choose that one).

    This is the best option for you as you limit any future gain on her half to being subject to CGT.

    Your half will always be calculated as per the above scenario in your name solely, but now only 1/2 the property will be calculated that way.

    Only caveat for transferring to your wife is stamp duty but most states have no duty on transfers to spouse for no consideration but check this as I dont work much with Stamp duty.

    • JetLi on 08/09/2016 - 16:53

      you need to factor in the opportunity cost of the $50k of tax paid up front and what if the market value actually goes down or flatlines in the future. Lots of unknowns here, don't think transferring 1/2 share to your spouse now is necessarily the best option overall.

    • fatboyslim on 08/09/2016 - 20:10
      -1

      So what about if i add my wifes name after we move in (ie to save on stamp duty). N it will make no difference in the CGT that i have to pay?

    • danyool on 09/09/2016 - 14:18
      -1

      CGT) will apply to it. This cannot be reduced under the law.

      The gain can be 'reduced' by the elements of the cost base, eg stamp duty.

      Basic Eg - if the purchase price was $500k and $30k stamp duty, stamp duty is added, so your cost base is $530k.
      If you sold for say $700, you've maid a "gain" of $170k, not $200k

      BUT, if you've been claiming building depreciation - that gets added back to the calculation - say you claimed 5k for 3 years = $15k is deducted - so your cost base is now $500k + 30K - $15k = $515k and the gain is $185k

    • danyool on 09/09/2016 - 14:23

      You can also reduce Capital Gains by any capital losses, so if you had any potential losses (or carried forward losses) eg some shares that haven't performed well, you could sell them in the same year, and that will offset some. (whether that's the best course is a different question)

      Or - if you sell in a year when your income is reduced, eg if you were to get a bonus for your work and you can get them to postpone it or bring it forward if it's near 30 June. Or if you took some unpaid leave for a holiday or something - that can help reduce the tax - as the Capital Gain is added to your regular income anyhow.

      Still - there's probably more complexities than that - so you may want to get further advise.

      Anyhow you should be cheering - you've made a gain!! :)

  • [Deactivated] on 08/09/2016 - 17:55
    +1

    Just on the question of stamp duty. I can confirm that, In Qld, if you transfer half share in your PPOR to your spouse for no consideration, it is exempt from stamp duty. It Is possible, but not generally advisable, to do it yourself.

    • fatboyslim on 08/09/2016 - 19:58

      But someone above said u r only exempted fr stamp duty if fr day 1 ur home is ur PPoR whereas my case it has been an IP for 3 yrs prior becoming my PPoR. So doesbthat still apply?

      • JetLi on 08/09/2016 - 20:04

        I was referring to CGT only, I have no idea what your state stamp duty requirements are.

        • fatboyslim on 08/09/2016 - 20:07

          Thanks for clarifying. The property is in NSW

        • djkelly69 on 13/09/2016 - 23:38

          @fatboyslim: Here is the form you need to add your wife's name:
          http://www.osr.nsw.gov.au/sites/default/files/file_manager/o…

          You should note you are giving a stat dec to say you are currently living in the property as your PPoR, etc.

          Will also need consent from the bank to do this, and they will likely want to discharge the mortgage under just your name and do a new mortgage under both names.

          You also can't send documents directly to the OSR for stamping anymore (for this sort of stamping at least), so will need to find a solicitor or legal agent to stamp it exempt for you.

      • [Deactivated] on 09/09/2016 - 07:44
        +1

        There is no ownership time qualification for this stamp duty exemption.

  • CheapskateQueen on 08/09/2016 - 19:58

    Is this the only property you owned since you bought it? And did you ever live in it before you rented it?

    • fatboyslim on 08/09/2016 - 20:02
      -1

      Never lived in it since day 1. Ive always rented n i bought that one with the view to be my long term resident so didnt think too much. However it is quite far fr CBD so we r thinking of selling it after living in it for a few yrs to reduce our CGT a bit then move back closer to the CbD with the view of buying eventually in the closer location

  • simmos on 09/09/2016 - 21:59

    Be sure to get a sworn valuation at the time of taking up residence so that there is a value established for CGT purposes and no grey areas. In absence of the SV, you are at the mercy of the ATO to agree with you!

    • fatboyslim on 09/09/2016 - 22:19

      I think the years i havnt lived in it has the strongest cap growth. Wouldnt it be better that i assume the growth is linear (ie no valuations) to min my CGT?

  • scoobydoodledoo on 10/09/2016 - 20:11
    -1

    There is no need to got a sworn valuation when you move into the property as your PPoR as you are not allowed to increase your cost base from your facts. There is a common misconception that for capital gains purposes you get an increase in cost base of the property to its market value when you move into an investment property as your PPoR. But this is not the case.

    The rule actually works in the reverse. If you have lived in a property since first purchase then move out and rent it, you get a sworn valuation at the time it is first rented so you can have a reduced capital gain if you have a profit on it when you sell it due to it becoming an investment asset.

    Getting a valuation as suggested by one person above is incorrect.

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