Ask Ban Tacs Question
I purchased a property in December 2018 for $820,000 it is now valued at $1,800.000. This property was bought by me with my finds, however at the time I decided to included my daughters name on the property title. We both own 50% each, as Joint Tenants.
I have lived, and I’m still living in this property, since December 2018.
My daughter is an Australian Citizen who moved to New Zealand permanently in 2004. She owns a business in New Zealand and purchased her own property in New Zealand 2008. She is a permanent resident of New Zealand. She has resided in New Zealand since 2004. She has not paid any taxes in Australia since moving to New Zealand in 2004.
At this stage my daughter is not thinking of returning to Australia.
Question relating to my daughter Tax obligations.
- If I sell the property, what are the tax implications, that she needs to consider, will this have consequences on her tax in New Zealand. Can she keep them both seperate.
- Am I correct in thinking that she will be paying 100% CGT on her title share, and will not be eligible for the tax-free threshold.
My daughter has an Australian superannuation account, and she has not made any contributions, or employee contributions since 2004.
- Is she able contribute into this Superannuation rollover account to reduce the Capital Gains Tax. If yes, how much can she contribute
If she does return to Australia, and lives in this property with me
- How long would she be required to live in the property to reduce or completely wipe out the Capital Gains Tax.
Additional Information.
- My daughter is 51 years of age
- I am 70 Years of age.
Answer
Oh what a terrible tax consequence for a property that should have been fully covered by your main residence exemption. You are pretty much spot on. Thank you so much for allowing your question to be published so that we can warn others.
The problem could go away completely and the whole house be covered by your main residence exemption if your daughter simply held half the house on trust for you. The fact that you paid for all of the house and that it was a joint tenancy arrangement so in the event of her death the house would automatically come back to you does help this argument. Does you solicitor have any working papers showing your discussions, the reason for your daughter’s name being on the deed? It is well worth talking to him or her about this. If your daughter is holding half the house on trust for you then you could use section 106-50 ITAA 1997 to treat the whole house as yours and cover it with your main residence exemption so no CGT.
Failing that the CGT calculation would look something like this:
| Half Sale Proceeds | $900,000 |
| Less cost base: | |
| Half Original Purchase Price | $410,000 |
| Half Stamp Duty to buy | |
| Half Legals | |
| Half Selling costs | |
| Half Improvements | |
| Half Holding costs | |
| Let’s say Capital Gain of | $300,000 |
| Super Contribution | $130,000 |
| Taxable | $170,000 |
| Assuming after 1-7-2024 first | $45,000 x 19% = $8,550 |
| Remainder | $125,000 x 30% = $37,500 |
| Total tax | $46,050 |
And growing
Now the official non resident tax rates are not yet available on the ATO web site for the 2024-25 financial year. I am anticipating they will also reduce along with the stage 3 tax cuts for resident taxpayers. Certainly, if the gain was in this current financial year the tax would be much higher than what I have calculated above and it will be much higher than this if non residents are not given the benefit of the stage 3 tax cuts.
Holding costs (section 110-25(4) ITAA 1997) have a huge potential for you. They include just about everything associated with owning the house. So interest on loans, insurance, rates, repairs and maintenance which would include even cleaning materials and lawn mower fuel. Just a matter of keeping receipts.
I can’t tell you how NZ would tax the sale of the property, you might be lucky as I understand their capital gains tax does not go as wide as ours. Also if NZ did tax it they would have to give your daughter a tax credit for the tax paid in Australia, in accordance with our double tax agreement. So NZ is probably the least of your worries.
Your daughter is not entitled to the 50% CGT discount because she is a non resident.
I am assuming your daughter has never lived in the house as her home because she has been a resident of NZ for tax purposes the whole time you owned it. So coming back to Australia to live in it would only provide CGT relief for the time she lived there. It won’t fix the problem to date.
In my example I have used $130,000 in superannuation contributions just as a guess. As your daughter already has an Australia superannuation account she can make contributions to the fund and claim them as a tax deduction. She is only entitled to claim up to her unused non concessional cap which is now $27,500pa but a couple of years back it was only $25,000pa. This unused cap can only be saved up for a maximum of 5 years and her superannuation balance at the end of the year before she makes the contribution needs to be under $500,000. As she has not been in Australia for the last 5 years she probably has the full amount available. She can find this out by looking at her MYGOV account.
Taking your daughter’s name off the title will just be a deemed CGT event at market value.
I have attached a spreadsheet that will help you track everything you will need for her CGT calculation
