My wife and I bought our house in Brisbane in 1974 – i.e.pre CGT, so it is CGT exempt. We lived in it for 22 months before renting it out for 7 years while we lived overseas. We moved back into the house in 1984 and have lived there continuously since then.
We then bought a holiday unit on the Gold Coast in 1991, for our and our family’s personal use, averaging about 80 to 100 days a year. We have never rented it out or claimed any expenses as tax deductions.
We now want to sell both properties and downsize.
Can you confirm that we can treat the Gold Coast unit as our principal residence, so that both our house and Gold Coast unit will be CGT exempt.
This is why I am so glad I am an Accountant, it seems to me, at times, that tax law is intended to trap the unwary and let those that can afford a full time Accountant get away with so much.
Back when you bought the unit on the Gold Coast, if you had moved in there and lived in it as your home, not a holiday, you could have established it as your main residence and then because it was not earning any income you could have used section 118-145 to continue to cover it with your main residence exemption after you moved back to Brisbane, for the whole time you owned it. Now if you move into it you can only cover it going forward so still huge CGT.
Is there a time you lived in it? For example changed your address on the electoral role and your licence etc. Stored personal effects there and went to work from there ie not a holiday. If so were your immediate family living there with you?
Assuming you cannot point to a time where you established the Gold Coast as your main residence then CGT applies to any gain you make. You go back to the original purchase price add to that stamp duty, legals, selling costs and improvements to get your cost base. Now if you purchased the property after 20th August 1991 then you are also entitled to increase your cost base by holding costs, this covers anything you can obtain records for that relate to the unit, reference section 110-25(4). For example, rates, body corp, insurance, interest, painting, repairs and maintenance. This even includes cleaning materials and light globes. Your capital gain is the difference between this cost base and the selling price. As it seems you purchased it with your wife this gain is then split between you then halved for the 50% CGT discount then added to your other taxable income.
Is there any chance you could downsize to the Gold Coast Unit? No CGT if you don’t sell. If it is still covered as your main residence when you die your heirs inherit it at market value at the date you die so all the CGT liability you would have accumulated in your life time is forgiven and forgotten.