Ask Ban Tacs Question
Julia
Re CGT
Refer below to a bit of history supplied to my tax agent.
- With our renovations & costs going on and, on all year 2022, we sold my townhouse at Bellambi. The Solicitor settlement on the 28/10/2022 break up is attached.
- The history is I purchased the townhouse around 2005 for $320. I just sold the townhouse for $783k. You have the costs involved over those years re refurbishment & air con etc.
- I lived in the townhouse for a couple of years before renting the townhouse.
- Narelle & I did purchase a unit in church st Nth Wollongong.
- We sold it for a capital (CGT) loss refer attached solicitor break up. We have been told we can use this loss to reduce my CGT (maybe).
- We lived back in the townhouse from Sept 2020 to May 2022.
- We purchased 19 Alvan Pde Mt Pleasant house in May 2022
- Our friends rented the townhouse from July 2021 to June 2022.
- The place has been empty since July 2022.
- I am still working on special projects, and I will earned $45,000 this financial year probably finishing soon!!!
- Considering I always had friends staying and paying lower rent and overstaying etc.
- Considering I am still working part time as a contractor at 69 years old because I have lots of engineering experience.
- Considering I pay a lot of tax to keep (sole trader & one employer) working!!
- We have $100k left after paying out all mortgages.
- After selling my townhouse $80k is invested to reduce my CGT tax etc.
- I have CSS super, and my wife (retired) has state super (teacher who left to have a family (single mum) then back to teaching so smaller super!!)
- Can I reduce the amount of estimated CGT which is due next financial year etc.
What else do you need?
Answer
Yes you can certainly reduce the amount of CGT you have to pay by making a superannuation contribution. You can check my gov for your un used concessional cap which may allow you to contribute and claim a tax deduction for much more than the annual $27,500. The superannuation contribution is deducted from your taxable income after the 50% discount has already reduced the capital gain. Though when you put this amount into the super fund it will be taxed at 15%, maybe 30% if your income is over $250,000.
Now more importantly how to actually minimise the capital gain. I attach two spreadsheets (Main Residence Spreadsheet and Residential Investment Spreadsheet) that will allow you to work out the gain on each property making sure you don’t miss anything. Use the main residence one for any property that you have lived in at any time and the residential investment property one for a property that has no chance of being covered with your main residence exemption because neither you nor your spouse or child under 18 have lived there.
As a member of a couple you are only entitled to one main residence between you. You can even choose to cover your spouse’s home if you have never lived there, as long as they have. You can put half on each home but that is unlikely to be the best outcome, best to put both your halves on the property with the most capital gain. From your time line here are your options:
Bellambi Town House Covered with your main residence exemption up until Oct 2007 because there was no other property owned by you and you were entitled to the full 100% as a single person. From the point of marriage you are locked into covering Narelle’s house because she would have sold it with a full main residence exemption. There is no reset to market value of the Bellambi house when you first rented it out because up till July 2018 it had not been 100% covered with your main residence exemption. Accordingly, use the main resident spreadsheet starting right back at April 2006 apportioning for days covered by your main residence and days not. Once Narelle’s property was sold it had been more that 6 years since you lived in Bellambi so you cannot move your main residence exemption back to this property until you actually moved back there in August 2020. Section 118-145 allows you to continue to cover it with your main residence exemption after you move out that time, in August 2021. But consider from May 2021 to Oct 2022 you have to choose between covering this or the Mt Pleasant house. See discussion on Mt Pleasant, you may not qualify to cover Mt Pleasant with your main residence exemption between May 2021 and August 2021 anyway so may as well cover Bellambi.
Narelle’s house – Sold in Nov 2015 no doubt she did not pay any CGT on this sale on the basis it was her main residence. This means from Oct 2007 to Nov 2015 she used your half of your couple’s main residence to cover the property so we are stuck with that which cuts out that period for any other property.
Church Street apartment – never lived there so fully exposed to CGT, use the residential investment property spreadsheet. If a capital loss then can carry this forward to use against any capital gain in the 2020 financial year or following years. If you have been claiming building depreciation on the apartment you might not have a capital loss after all. Further, if there is a capital loss of course you will only be able to use half against the gain on Bellambi because you only own half of Church St and 100% of Bellambi.
Mt Pleasant house – it would be nice to cover this home with your main residence exemption right from the start so you don’t have a record keeping obligation for the rest of the time you live there. But for this to be the case you have to have moved into it as soon as practical after settlement which you didn’t. The only carve out around this is if no one was living there at all and you delayed moving in due to renovations. This is covered under section 118-150. If this is the case and you want to cover Mt Pleasant from day one then that further reduces the days Bellambi can be covered.
On the basis that it is better to put both of your half main residence exemptions together to cover the property with the highest gain and that you are already stuck with covering Narelle’s house regardless this is how your main residence exemption should roll.
- April 2006 to Oct 2007 on Bellambi
- Oct 2007 to Nov 2015 Narelle’s house
- Nov 2015 to August 2020 cannot cover any property as it has been more than 6 years since you last lived in Bellambi and you own no other properties that you have ever lived in.
- August 2020 to May 2021 can cover Bellambi with your main residence exemption as moved back in there.
- May 2021 to August 2021 Was no one living at Mt Pleasant and it was being prepared for you to move in? If so you have a choice of covering Bellambi or Mt Pleasant. If say it was tenanted then no choice just cover Bellambi for this period
- August 2021 to Oct 2022 choice between covering Bellambi or Mt Pleasant.
Please let me know if you think I have missed a point or got your dates confused.
