Application of Capital Gains Tax

Question

I purchased a property with my late wife as tennants in common in 1979 prior to the introduction of capital gains tax.In 1989 my wife passed away. We had lived in the property from it’s purchase.On my wife’s death the title to the property was automatically transferred/transmitted into my name soley. I continued to live in the propery until 1992 when it was rented out.I subsequently sold the proprty in February 2008.As the property was purchased prior to CGT I was under the impression that it’s sale would not incur CGT. Am I correct? If not, what information will I require to enable my liability to be assessed?

Answer

One half of the property is a pre 85 asset but the half inherited from you late wife is a post 85 asset. It is exempt from CGT until you moved out in 1992. Now from that point assuming it was rented the whole time, you can continue to exempt it from CGT for up to 6 years but you cannot use your exemption on any other property during that time. So there will be a CGT liability for at least 10 years. The capital gain is apportioned on a time basis between the time it wasn’t covered by your main residence exemption and the time it was. Remember we are only talking about the gain on half the property here and only from 1989.

Because the property was first rented before 20th August 1996 you cannot use the market value when first rented as the first element of your cost base you will have use the market value of half the property at the date of your wife’s death. You can add to this half of any improvements since then and half of the selling costs. You will not be able to increase the cost base by ownership costs such as rates, interest, insurance, repairs and maintenance because it was acquired before 20th August, 1991.

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