Ask Ban Tacs Question
My sister and I became the beneficiaries of my Father’s estate upon his death in 2004. The only asset was his home in Tasmania that was owned 50% as tenants in common with his second wife Patricia. His share was left to us by testamentary trust with the trustee being Tasmanian Perpetual Trustees.
In 2005 Patricia wanted to move back to Sydney to be close to family and we agreed for her to sell the house in Tasmania and move to a similarly valued house in Sydney. The Trustee could no longer act for an asset out of Tasmania and so retired as trustee. A transfer of trustee was executed with Patricia, my sister and myself as the new trustees of the estate.
After Tasmanian Perpetual Trustees’ fees and other costs my sister and I ended up each with 22% ownership of the new house and with our names on title as tenants in common along with 56% to Patricia.
Patricia has recently died and the executors of her estate are moving to sell the house.
She lived in the house until her death, never remarried and the house was not rented during that period.
The questions are:
- Will my sister and I be subject to CGT on the sale of the Sydney house
- If yes, would be cost base start with the Tasmanian house or the Sydney house, noting we have limited records for both transactions.
Some numbers:
- Tasmanian house sold for $320,000 with sales costs of around $6,000
- Tasmanian Perpetual Trustees’ fees of around $8000 taken from the estate
- Sydney house purchased for $320,000 with Patricia contributing the outstanding funds and all costs to finalise the purchase.
- Sale price expected to be around $850,000
Answer
Julia’s Reply – Part 1
I am only talking here about the sale of the Sydney home, I assume all the CGT issues were dealt with, as they should have, on the sale of the Tasmanian property. It also sounds like the trust no longer exists you are just tenants in common in a property. And the trust ceased to exist before the Sydney property was purchased for that to be the case. Which makes this all very straight forward.
As neither of you have lived in the house there is no opportunity to cover it with your main residence exemption so you will be subject to CGT on your share. Further, as you are not inheriting Patricia’s main residence none of the CGT concessions available to estates, such as two years to sell free of CGT or resetting the cost base to market value at DOD apply.
The first element of each of your cost bases is 22% of the purchase price. A cost base would normally include stamp duty, solicitors fees, selling costs etc. From your question it appears that Patricia paid all of the extra costs associated with the purchase, so they go into her cost base not yours. You will be entitled to increase your cost base by holding costs such as Interest, rates, insurance, land tax, repairs and maintenance that you paid for. Note this would only apply to expenses you have paid for, I am concerned that Patricia may have paid all of these as well.
Hopefully you can find some amounts you have paid, to include in your cost base but if Patricia paid for everything the CGT calculation will just look like this:
| Sale Proceeds $850,000 x 22% | $187,000 |
| Less: | |
| Purchase Price 22% of $320,000 | $70,400 |
| Capital Gain | $116,600 |
| Less 50% CGT discount | $58,300 |
| Taxed at your marginal tax rate | $58,300 |
Bruce’s Reply – Part 2
Hello Julia,
Thanks for your answer. My query was not about CTG calculations but centred on whether the move from Tasmania to Sydney changed the CGT liability. From my understanding, if Patrica had remained in the same house until her death there would have been no CGT liability for my sister and I, perhaps I have that wrong.
As mentioned, the testimonial trust was apparently transferred from Tasmanian Perpetual Trustees to us, this occured around the time of the move. We do have that documentation. Would that not mean there is still a trust in existence and the same conditions that existed when Patrica lived in Tasmania would still apply after the move to Sydney? As for names on title, I had always assumed it would be in our names but as trustees for the estate. Maybe I had that wrong too.
This was the essence of the question. Did the sale and purchase by us, as trustees, make the testimonial trust cease to exist or invalidate the residence exemption that was applicable before the move?
There were no CGT issues mentioned or indeed dealt with at the time (but of course we would have let her move anyhow).
I am sorry if I did not make that clear in the original question, but now we have this started I’d like to ensure all aspects are covered. I can send what documentation I have including original will and change and retirement of the trustee. I understand that may make this a “complex” question with additional costs.
Thanks,
Bruce
Julia’s Reply – Part 2
Thanks for your answer. My query was not about CTG calculations but centred on whether the move from Tasmania to Sydney changed the CGT liability. From my understanding, if Patrica had remained in the same house until her death there would have been no CGT liability for my sister and I, perhaps I have that wrong.
That would only have applied if you inherited the house from her. There should have been a CGT issue when the Tasmanian house was sold but it sounds like that happened under 2 years from your father’s death so nothing taxable anyway. The main point here is there is no rollover, no substitute for CGT purposes, it all starts a fresh with the new house. This only leaves the question of whether the trust is still running and it is the trust that declares it in their return and then distributes to you and your sister personally. I got the impression from what you said that you held it individually rather than as trustee because you used 22% instead of 44%.
As mentioned, the testimonial trust was apparently transferred from Tasmanian Perpetual Trustees to us, this occured around the time of the move. We do have that documentation. Would that not mean there is still a trust in existence and the same conditions that existed when Patrica lived in Tasmania would still apply after the move to Sydney? As for names on title, I had always assumed it would be in our names but as trustees for the estate. Maybe I had that wrong too.
Best check with a solicitor on that one sorry. But even if the trust is the one taxed it will just have to distribute the gains out to you into your tax returns because you are presently entitled so you are just adding another tax return to the mix. You will still end up taxed on it.
Bruce’s Reply – Part 3
Thanks Julia
I’m getting my $129 value here today. Now I know the sale is CGT liable, I’m absolutely not signing anything and after June 30th!
Last question I promise.
A hypothetical just to be clear on inherited property, it may be helpful in dealing with Patrica’s family.
We inherited my Father’s 50% which he held as tenants in common with Patrica having the other 50%. That was then held by the testimonial trust on his death. So had Patrica not moved, we would still hold 50% of the Tasmanian house. Would that have been CGT except on any sale now?
Thanks,
Bruce
Julia’s Reply – Part 3
I appreciate that you have made your Q&A available for our notice board, not many askbantacsers do.
A hypothetical just to be clear on inherited property, it may be helpful in dealing with Patrica’s family.
We inherited my Father’s 50% which he held as tenants in common with Patrica having the other 50%. That was then held by the testimonial trust on his death. So had Patrica not moved, we would still hold 50% of the Tasmanian house. Would that have been CGT except on any sale now?
That would only have applied if you inherited the house from her
The concessions are that you get two years (or longer if life tenant) to sell the deceased’s house without triggering CGT and you get to reset the cost base to market value at date of death. It is for this reason that selling Tasmania a year after your father’s death would not have resulted in a CGT liability. But these sections only apply when you inherit the deceased’s home. It could also be argued that Patricia had a life tenancy in Tasmania that would have extended the 2 year limit but all academic in regard to Tasmania.
In the case of Sydney it was Patricia’s home so her family get 2 years to sell without CGT and a reset of the cost base of her 56% to market value at DOD. You are merely co owners, testamentary trust or not. The asset is not coming to you due to a death.
Please note this answer is limited by the information you have provided and should not be relied upon without further professional advice on your particular circumstances.
