Ask Ban Tacs Question
Hi there
I’m wondering if you can help me here on working out any capital Gains Tax I will have to pay
I have just sold my home for $1 100 000 with settlement to occur on 11 Jan 2024
I have rented out part of my home for the last 2 years and I’d like to work out how much capital gains tax I will incur.
I originally bought the house with my husband in 2006. After our marriage broke down in Nov 2016 the house was valued at $650K. (consent order figure for me to buy out my husband)
I transferred the title of the house to be solely in my name on the 17/3/2017
I have lived in the home the entire time.
In 2021 I renovated the upstairs (27% of home) to be independent living and have had a tenant there since the 30/7/2021. The tenant moved out on 31/10/2023
Tenant (same tenant the whole time) moved in
30/07/2021 @$360 per week including bills 31 weeks = $11160 Real Estate agent
01/03/2022 @$380 per week including bills 24 weeks = $ 9120 Real Estate agent
15/08/2022 @$400 per week including bills 63 weeks $25200 Private agreement
moved out 31/10/2023 TOTAL 118 weeks $45480
I see I require a clearance certificate for capital gains on properties over $750000 is that just the simple form via ATO?
I appreciate your time
Thanking You
Cathy
Additional Information to the Following Questions
- In 2006 when you purchased the home you moved straight in and did not cover another property with your main residence exemption during any of that time. Consider here, how your husband used it leading up to Nov 2016. Did he buy another property and cover that with his main residence exemption instead?
We moved in directly in 2006 after selling our previous residence
My ex did not re-buy a property until October 2019
- Before 17-3-2017 the property had never earned income.
We did rent the property out from End of 2008- mid 2011 ( roughly 18 months) when we moved to Melbourne
We did not purchase another home in Melbourne. We rented
Answer
I am glad I asked as that makes quite a bit of difference.
That moving out and renting the property at the end of 2008 creates a one and only reset, so you don’t get it again when you started to rent out just part of the house. You CGT calculation starts with the Market value as at the end of 2008, section 118-192 1997 ITAA also resets your deemed acquisition date to end 2008 so nothing before that date is taken into account in the CGT calculation. The next hurdle is there would have been a time when your ex did not live in the house but still owned it. Due to the marriage rollover relief you are deemed to have used that half of the house in the same way he did. So I hope he will elect to cover it with his main residence exemption in his absence as he didn’t need to use it elsewhere.
It seems a reasonable assumption from what you have said that you have always been a resident of Australia for tax purposes.
You need to work out the whole capital gain on the house from the end of 2008 to sale. This figure is then apportioned between days covered with your main residence exemption and days not. Looks like all the days from end 2008 to when you first advertised for an upstairs tenant are 100% covered with your main residence exemption. Then from around July 2021 (when first advertised for rent) to 31-10-2023 only 73% of those days are covered with your main residence exemption. Then from 31-10-2023 to 11-1-2024 are 100% covered by your main residence exemption. Or put more simply work out the number of days between July 2021 to 31-10-2023 and multiply that number by 27%, let’s call that X. Then work out the total number of days from end 2008 to 11-1-2024 and call that Y. X/Y will give you the percentage of the whole capital gain that is taxable, then of course you halve it for the 50% CGT discount. That was the easy bit.
Next you need to calculate the whole capital gain starting with the market value at the end of 2008 as the first element of the cost base.
A really rough example would be
| Market Value 2008 | $500,000 |
| Holding costs | $200,000 |
| Improvements since 2008 | $150,000 for example renovating upstairs |
| Selling Costs | $ 50,000 |
| Cost base | $900,000 |
| Sale Proceeds | $1,100,000 |
| Whole Capital Gain | $200,000 |
| Time X/Y say | 5% |
| Taxable Gain | $10,0000 |
| Less 50% CGT discount | $5,000 |
| Net taxable gain | $5,000 |
Note there is also probably an adjustment necessary for depreciation
The trick here is holding costs, section 110-25(4) allows you to include any costs associated with the property that have not otherwise been claimed as a tax deduction. The way that formula works is the costs associated with the time and area that is not subject to CGT proportionally reduce the capital gain for the area that is subject to CGT. Holding costs include interest, rates, insurance, repairs and maintenance. Maintenance is a good one, can even include cleaning materials if you have kept records. Think about plants and lawn mower fuel too. Note some of the interest, rates, insurance etc would have been claimed against the rent so that amount cannot be included in the cost base.
I have attached a spreadsheet for you to put all this stuff together.
The clearance certificate is just to verify that you are an Australian resident for tax purposes. You should be able to get that quite easily through MYGOV
