â€¢ Mr A purchases Property X and moves in – Dec 2006.
â€¢ Mr A marries Ms B and moves into her property (Property Y) – Mar 2010.
â€¢ Mr A signs a rental agreement with a real estate agency for Property X â€“ Jul 2010. Rental income is declared and expenses claimed over the ensuring period.
â€¢ Ms B sells Property Y â€“ Aug 2015
â€¢ Mr A advises real estate agent to cease advertising the property for rent â€“ Aug 2015
â€¢ Mr A and Ms B move into Property X – Oct 2015.
â€¢ Tax returns for Mr A and Ms B for 2015/16 were filed but there was no acknowledgement of any Capital Gain Tax event.
â€¢ Tax returns for Mr A and Ms B for 2016/17 are yet to be lodged.
â€¢ I am aware that generally speaking, a couple can have only a single main residence between them (although there is the option to go 50-50 on two properties but letâ€™s not complicate things)
â€¢ In our situation it is financially advantageous for Property X to be CGT-free ie we have a definite preference to elect for Property X to be the main residence for both parties because the capital gain on Property Y will be small (or negative) due to extensive renovations.
â€¢ Given my understanding of the TAA, in our circumstances it appears possible for:
o Mr A to elect for Property X to be his main residence for whole period in which he has owned it (meaning no gain would be assessable once the property is eventually sold
o Ms B to elect for Property X to be her main residence for a period up until when property Y was sold ie Aug 2015. (I am not sure when the start date of this period would be â€“ is it Mar 2010?). This would mean any gain on the sale of property Y would be assessable.
â€¢ The intention is for Ms B to lodge an amendment for 2015/16 noting the capital gain tax event ie disposal of an asset and declare any capital gain. I donâ€™t think Mr A would need to given his equity in Property Y is nil
Question 1: Does this approach sound lawful/reasonable?
Question 2: Is there anything else we need to consider?
Thank you for your response Julia – it was most helpful.
I have a follow-up question regarding amending Ms B’s 2015/16 return. As it turns out, given the cost of renovations (made after March 2010) there was a capital loss made upon selling property Y. Note the loss was made without including any deductions such as interest, rates, insurance etc.
My question is can such a loss be declared in Ms Bâ€™s 2015/16 return and hence carried forward to future years (potentially to be used to cancel out gains from, say, future share purchases)?