CGT Calculation When Not Rental and Not Home

Question

In 2002 I bought a 3 bedroom house for my mother and father to live in. I paid $260,000, plus legals and stamp duty. Dad died 15 years ago and my mother still lives in the house. I have never charged them rent. Over the years I have paid for capital improvements costing roughly $100,000. Mum has an home care package from Anglicare and is thinking about moving into an aged care unit. When she does, or should she die before then, I will sell the house which is currently valued at around $800.000. My wife and I own our home and our sole sources of income are from our separate super funds. My balance is around $600,000. Given that I have no income apart from a superannuation pension fund, how might I be charged for CGT on the sale of the house my mother currently lives in?


Answer

I am assuming you are the only name on the title.

Sounds like all of your other income is tax free

I am assuming you have private hospital cover or will at least get it for the whole year that you sign the contract to sell the property.

Your CGT calculation would look something like this:

Cost base:

Purchase Price$260,00
Stamp Duty & legals$5,000
Holding Costs$100,000
Improvements$100,000
Selling Costs$15,000
-------------------------
$480,000
Sale Proceeds$800,000
-------------------------
Capital Gain$320,000
Less 50% CGT discount$160,000
-------------------------
Taxable Gain$160,000

*Holding costs include insurance, rates, interest, cleaning, mowing, repairs etc during the whole period of ownership, section 110-25(4)

As it looks like your total adjusted income is under $250,000 you could choose to put some money into super where it will only be taxed at 15% and will reduce the amount of taxable gain after the discount. But you need to be under 75 and get advice on how much you can contribute as there is an unused cap available if you didn’t use your cap up in previous years. If this is a consideration best to get some advice before the end of this financial year about whether you need to draw some of your super out of your name and put it in your wife’s name. Recontribution strategies have benefits anyway but you need to consider all the rules and your ages. The rules turn on the balance you have in super at the end of the previous financial year to the year you sign the contract to sell. Hence the recommendation you get advice on this strategy asap.

Now how much tax you would pay on the $160,000 (or less if you make a super contribution) depends on when you sell and I can’t see that much into the future re tax rates but here is the current state of play assuming you will not sign a contract this year.

Sell in 2022-2023 or 2023-2024 financial years

18,200 zero tax
18,201 – 45,000 19%$5,092
45,001 – 120,000 32.5% $24,375
120,001- 160,000 37%$14,800
Medicare 2%$3,200
-------------------------
$47,467

Selling 2024-2025 financial year or later

18,200 Zero Tax
18,201 – 45,000 19%$5,092
45,001 – 160,000 30%$34,500
Medicare 2%$3,200
-------------------------
$42,792

You should re work these figures for a more accurate estimate of the amounts. It is the year you sign the contract that counts.


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