This is a question about possible CGT liability on death of a partner. I have set out a fair bit of detail – the actual question is way down at the end…
So Dad died recent 20th April 2018 aged 97. He and Mum lived at Bribie in a house they bought together as follows:
a) Bought land 1982. Unknown cost.
b) contracted to build house on the land 45 – 46 Thousand. contracted completion date September 1984. I am not sure of final cost as there seems to have been some variations nor am I sure of practical completion date but safe to say 1984 3rd to 4th quarter.
c) They added an external carport 1990 and noting else except standard maintenance bits and pieces.
d) Other than usual holidays they have lived in the house as their primary residence since it was built.
e) The house has never been left vacant for protracted periods and the house has never been used as a rental either in part (renting a room) or as a whole.
f) Dad and Mum lived together for the whole time except for one or two occassions due to illness in which case one or the other was at home and the other was either in hospital or respite.
g) Dad had a fall last November (2017) and on discharge was then moved to Bribie cove, initially as respite but then asa permanent resident. Mum stayed at Bribie in their home.
The house was owned by themselves only as Joint Tenants and as such passes slely to Mum by survivorship and not as an asset of the estate. There is no other investment property and other than a small car and household effects the only other items are the refund of a bond from Bribie Cover for which, apparently Bribie Cove requires deedof Probate. and some cash at bank possibly 200k or less.
Now, it is likely that Mum will stay in the house herself for a period of time (she is 94), however some time down the track she will either move into a aged persons facility of some degree or perhaps move in with myself or one of my siblings (less likely). At presenmt she enjoys reasonable health for her age is of sound mind and independently mobile
My understanding of CGT is that
a) as the house was built prior to 1995 itis not subject to CGT anyway
b) as Mum and Dad were joint tenants Dad’s share that passes to Mum is counted as from 1995 and not from date of Dad’s passing
c) even if 1995 date did not apply the passing of dads share to mum would count from 1994 anyway.
d) I also understand that even if mum sold the house within 12 months provided she did not rent the property prior to sale and provided she did not claim any other primary residence she would not incur a CGT event.
I see possibly 2 x future scenarios
a) Mum keeps the house, moves in with one of the family and rents her house – claims her house as primary residence and then within 6 years (seems to be the critical time frame) moves into a aged persons facility and sells her house to meet the bond. I would see the need for the contract of sale to be dated prior to 6 x years from first placing on market ot rent (No CGT event?)
b) Mum lives in the house for a while and then decides to move into a aged persons home , places the house on the market to realise the bond. (Again No CGT?)
Question (finally she says)….
a) Is my reasoning correct re CGT trigger only being if she decides to rent the house for more than 6 years, which is unlikely given she is already 94 years old.
b) Is there any possible CGT trigger we should be aware of that I’ve missed
c) Just a thought – what happens if the house is being rented out by Mum when she passes away. I am guessing that provided it is being claimed as her primary residence CGT would only trigger from the date of her death (for estate purposes) and the cost base would set from date of death, or does the pre 1985 build protect the estate from CGT.
The short answer is there is very little risk your mother or her estate will be subject to CGT assuming you sell within 2 years of death.
You have mixed 1995 and 1985 a bit in your question so I will just restate the land and house are a pre 19th September 1985 asset to your parents so pre CGT. Even the addition of the carport after 1985 does not change this as it is under the improvement threshold. Each improvement gets a fresh start at the threshold so doesn’t sound like anything has affected the pre 1985 status of the property until your father’s death. At that point section 128-50 kicked in
Section 128-50 ITAA 1997
This section has rules that are relevant if a *CGT asset is owned by joint tenants and one of them dies.
The survivor is taken to have *acquired (on the day the individual died) the individual’s interest in the asset. If there are 2 or more survivors, they are taken to have acquired that interest in equal shares.
Joint tenants are treated as owning a CGT asset in equal shares: see section 108-7 .
View history reference
If the individual who died *acquired his or her interest in the asset before 20 September 1985, the first element of the *cost base and *reduced cost base of the interest each survivor is taken to have acquired is:
*Market value of the interest of the individual who died (worked out on the day the individual died) /Number of survivors
So now your mother has half a house that is pre 1985 and that half will never lose that status (baring a rebuild) until she dies or sells it.
The half she received from your father is now a normal post 1985 asset with a cost base of the market value at the date of your father’s death. This is covered by her main residence exemption so far. When she rents it out the cost base of your father’s half will be reset again to the market value at that time and it is important to keep anything that is not otherwise claimed as a tax deduction, to increase her cost base. Renting out will not change the pre CGT status of her original half. Section 118-190 ITAA 1997 allows her to continue to cover the property with her main residence exemption even while living in a nursing home by using the rules in section 118-145 which is up to 6 years while it is earning income or indefinitely if it is not. Considering your Mum’s age and the fact she doesn’t even need to move out of the house yet you are pretty safe to rent it out. But if it gets close to the 6 years simply stop charging the tenants rent so you get the indefinite period. The 6 years is measured as time it was available for rent ie listing it.
Section 118-190 says that for the purpose of deciding that the house was your mother’s home at DOD it can be being covered by section 118-145 at the time. In other words if she dies in a nursing home while the property is rented as long as rented for less than 6 years then it can still be considered her home for section 128-15 purpose so inherited by you, with a cost base of market value at date of her death because it is still covered by her main residence exemption at DOD. Even if the 6 years has expired it would only be the half that was inherited from your father that would have a CGT issue as her half would still be a pre CGT asset at the time of her death no matter what. The only thing that changes that is change of ownership.
So all in all the house will be completely covered with her main residence exemption when she dies which means the estate inherits it with a cost base of market value at the date of her death. Section 128-15 applies for both halves, one half as a pre 1985 and the other because it was consider her home at DOD. Further section 118-195 allows the estate 2 years in which to sell it with no CGT at all.
All in all you are doing just fine nothing further to do than keep records if the property is ever rented, just in case. Once the property has been rented out the record keeping should continue even if it ceases to be rented out.