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I am a bit confused with the information in the ATO website, my situation is, my father passed away last year and we sold his house on I acre block.
Prior to 1994 I lived in that house. In 1994 I got married and unfortunately got divorced in 2006, I sold our marital house and I did not purchase another house.
During that time my mother died and my father put our names(siblings) on the title as tenants in common on his house, because he was getting married and wanted to preserve some of the ownership.
The split was Father 1/2 and siblings 1/8 (4 siblings) this represented my deceased mother’s portion..
The title was changed early 2000s. I and my siblings did occasionally stay at my father’s house until his passing.
I think I am exempt from capital gains because it was the only property I have owned since 2006, my siblings had their own houses all the time. Are we all exempt from capital gains, because it was our fathers main residence?
I know the portion we inherited from him via the will is capital gains free.
I appreciate your advice on this.
Answer
Another example of some of the many ways the ATO trap normal family arrangements.
Unfortunately only the part of the house your father owned ie his half gets that exemption from capital gains tax by resetting to market value (half the value of the house) at DOD section 128-15 ITAA 1997 and 2 years to sell without CGT 118-195 ITAA 1997.
Looking at your 1/8th ownership from “early 2000s” when it could no longer be covered by your father’s main residence exemption because he did not own that portion, there is potential for your main residence exemption to apply. The first test would be what evidence do you have that you actually lived there? Change of address on licence, electoral role etc. Collect what you can with that address on it and a date. Once you have established a point in time when you were actually living there then you can continue to cover it with your main residence exemption after you move out. Section 118-145 allows you to continue to cover your portion of the home with your main residence exemption indefinitely providing it is not earning income.
Now to the time before you actually moved into your father’s place. I assume that your other home was sold utilising your main residence exemption so there is probably a period between “early 2000s” and 2006 where you can’t cover your 1/8th share of your father‘s home because you have chosen to cover your marital home. Section 118-140 ITAA 1997, which allows you to cover 2 properties with your main residence exemption for up to 6 months before the first property is sold, maybe of some help to you here but I don’t know enough about your situation. So here is the text, it is pretty straight forward to work out if you qualify, in particular subsection 2:
SECTION 118-140 Changing main residences
118-140(1)
If you *acquire an *ownership interest in a *dwelling that is to become your main residence and you still have your ownership interest in your existing main residence, both dwellings are treated as your main residence for the shorter of:
(a) 6 months ending when your ownership interest in your existing main residence ends; or
(b) the period between the acquisition of the new ownership interest and the time when the ownership interest referred to in paragraph (a) ends.
118-140(2)
Subsection (1) only applies if:
(a) your existing main residence was your main residence for a continuous period of at least 3 months in the 12 months ending when your ownership interest in it ends; and
(b) your existing main residence was not used for the *purpose of producing assessable income in any part of that 12 month period when it was not your main residence.
I am hoping that you will get 6 months coverage in 2006 but unfortunately nothing before then. From 2006 it is just a question of when you moved into your father’s home. From that point forward it will also be protected by your main residence exemption. Of course none of this helps your siblings. Though hopefully it gives them enough information to consider their options. If they want to cover their existing home with their main residence exemption for the time they lived with your father to death they do not have the option of utilising the main residence exemption on your father’s home. The information you collect for this spreadsheet will also be useful to them just not the apportionment of the main residence days.
You will need to work out the whole capital gain on your 1/8th of your father’s house, starting with the market value in “early 2000s”. Make the most of section 110-25(4) ITAA 1997 that allows you to increase the cost base by holding costs such as rates, insurance, repairs, maintenance ie cleaning and lawn mowing. More detail in the spreadsheet attached. Once you have calculated 1/8th of the capital gain for the period you then apportion it between the number of days covered by your main residence exemption and the number of days not. The latter being the portion of the gain that you will have to pay tax on after allowance for the 50% CGT discount. The attached spreadsheet, the Protecting Your Home from CGT, allows you to make a estimate but please have it checked by an Accountant before declaring the result in your tax return.
