Ask Ban Tacs Question
I seek an opinion on my Sons liability to pay Capital Gains based on the following facts.
My Son is an Australian citizen.
My Son occupied his current prime residence in December 2003 and the family lived there till December 2008. That month the family moved to Qatar to housing provided by his employer. His Australian residence was rented out in January 2009. The property is in Joint Names
Whilst the property has been negatively geared from that date to the present he has not lodged Australian Tax Returns to carry forward the losses.
His wife returned to rented accommodation in Australia in March 2012.
Whilst possibly of little consequence as regards any CGT liability they were divorced in July 2013.
My Son now wishes to sell the property.
So,given the above
a. Are they jointly liable for CGT.
b. If not can he sell the property without returning to it and remaining Overseas or can his Wife whom is an Australian resident and a Joint Tenant in Australia arrange the Sale.
c. Given your opinion is there any point in him Lodging Returns for negatively geared losses.
Thank you.
Answer
Oh yes there is definitely a point in him lodging the past tax returns, they will give him some carried forward losses that he may be able to use one day but also because he is required by law to lodge them. The rental losses can be carried forward for an indefinite period of time and can be one day used to offset against any Australian income including wages and capital gains. His wife should too and it sounds like she maybe in a position to utilise those losses though the carried forward losses will be reduced by her other taxable Australian income and are reduced by any exempt payments received from Centrelink ie family payments.
Now to the capital gain:
Section 118-145 allows you to cover a property with your main residence exemption for up to 6 years while you are not living there and it is earning rental income. The period is infinite if it is not earning income so if you get close to the cut off date (Jan 2015) before he has a sale it may be worth his while to stop charging the tenants rent. Section 118-145 can still be used while he is a non resident of Australia for tax purposes just as long as he was a resident for tax purposes when he established it as his main residence. I am assuming he moved into the house as soon as possible after settlement and there was no one else living in it at settlement.
There is no need for him to return to the property before selling it to qualify under 118-145. As his wife is not covering another place with her main residence exemption she will not be liable for CGT either, providing sold before Jan 2015.
If they don’t sell before Jan 2015 how the CGT is treated:
If they have made a property settlement agreement where he receives 100% of the house then he is deemed to have owned 100% of the house back to 2003 so he will be up for 100% of the gain. Vise versa if she receives 100%.
If they haven’t done a property settlement before it sells post Jan 2015 then it is 50:50.
If they are still considered spouses she could move back into the house and reset the main residence exemption for both of them for another 6 years after she moves back out.
Note as a non residence for tax purposes, if he sells after Jan 2015 he will not qualify for the 50% CGT discount so it may be worth doing a property settlement transferring the property to his wife, if all else above fails.
Please remember that this answer is only given on the facts you have presented.
