Ask Ban Tacs Question
I bought a duplex unit in Tugun, QLD, in July 2010 for my mother to live in ($339,000). I was an Australian tax non-resident at the time and still am. The arrangement was that my mum paid all the outgoings (rates, water, insurance, etc). My mum even went to the trouble of adding her name to the rates bill. She also arranged to install solar panels and the electricity bill was in her name. I paid cash for the property so there was no mortgage.
I remember having had to pay stamp duty at the investor rate which was much higher than the owner occupier rate.
She moved out in April 2022 and we rented the unit our pretty much straight away. I felt that the CGT payable on the gain in value was too much for me to bear so I might as well just rent it out forever.
But, I read an article on the Bantacs Website (Non Resident Part Own of Australian House, June 6,2022) that mentioned the mother could claim her main residence exemption if she could prove the house was held as a bare trust for the mother.
Would I be able to utilize my mums main residence exemption in this case? How would I go about proving the property was held in a bare trust for my mother?
In the article, there was also mention of contributing to super as a means of lowering the CGT amount. I don’t have a super account setup but I understand a non-resident can setup a super account. Would I be able to utilize current year and past year contributions to lower my CGT amount payable if I sold the property (circa $700,000)
Thanks for your help.
Paul
Answer
Here is the relevant section from ITAA 1997
A trust doesn’t have to have a written deed and your mother certainly has acted as if it was her own home but it is a question of law as to whether you hold that house on trust for your mother. I can’t answer that, I suggest you apply to the ATO for a ruling.
If there is anyway that money that purchased the house came from her then you are in a good position, otherwise it would be more a case of saying it was a gift to her and looking for some sort of evidence that she treated it as she owned it. The improvements she made, the bills she paid and how she ever managed to get the council to put her name of the rates is a good one. All stuff you should put in the ruling application.
I think your ruling has a good chance of success just as long as there is nothing to contradict what you are saying the agreement is, then how can the ATO say the contrary?
Assuming the sale price will be more than $750,000 the non resident withholding tax issues will mean you are going to have to front up to the ATO anyway. The purchaser will withhold 12.5% of the sale price unless you can produce a clearance certificate which you can’t because you are a non resident. So the process would be to obtain a variance of that 12.5% to zero by using the form on this page https://www.ato.gov.au/Forms/Foreign-resident-capital-gains-withholding-rate-variation-paper-application-instructions/
You are not making this application as an individual but as a trust. Of course there is a problem that the trust does not have a TFN, don’t put yours in. You can leave that section blank and still complete the form.
When you get to this section tick that the capital gains tax exemption applies
You still have the issue of pointing out it is a bare trust therefore it is really your mother selling it not you as per section 106-50 above. You can attach a document with your argument. It would be best if your could attach a ruling.
Now I have never actually done this before so can’t tell you exactly what to expect and you are going to be challenging the ATO person who processes your variation. I would expect a higher skill level would respond to your ruling application. It may be better to apply for the ruling first so you can attach the response to your application for variation to the amount withheld. Rulings take a month or two so better to have that sorted before you find a buyer. Because you are personally a non resident and your name is on the contract there is no way of avoiding dealing with the tax office on this. Here is a link to the ruling application form. https://www.ato.gov.au/Forms/Private-ruling-application-form/
There is a lot of tax to save here so worth the effort.
I am surprised you say you can open a superannuation account while you are a non resident. Yes, you can make super contributions and claim them as a tax deduction in your Australian tax return and use up your unused concessional cap, if you have an account you can contribute to. Hopefully, this will not be necessary because you will be successful in proving to the ATO that you have always held the property in a bare trust for your mother so her main residence exemption will apply to exempt all of the capital gain.
Have you done a 2022 tax return declaring the rent? If not yet, hold off for that ruling. You don’t want to contradict yourself by saying the rent is your income, better to say it is hers as a bare trust. Also consider how the rent may affect her pension etc.
