I bought a property with a de facto partner (50/50 ownership) in Melbourne on 24 April 2010 and lived in it for just over three years. It was rented out for the first time on 10 June 2013 and has been rented out until the present day.
I separated from my partner and settled the property (so that I now own it 100%) on 10 June 2013.
My questions are as follows:
• If I sell the property before six years from when it was first rented out, am I exempt from capital gains tax (CGT)?
• Are there any CGT implications for the settlement that occurred in 2013, when I became the sole owner of the property?
A: I understand that you moved into the home as soon as practicable after settlement of the 2010 purchase, and that the home qualifies as your principal place of residence (PPOR).
The home was rented out on 10 June 2013, the same day as your settlement. Consequently, the property likely became a rental property prior to the transfer.
If the transfer of 50% of the property to you occurred because of a court order, formal agreement or award, then rollover relief allows your ex-partner to disregard any capital gain.
You, as the person receiving the asset, will incur the capital gain or loss only when you ultimately dispose of the asset.
Your cost base relating to the acquired 50% share is the original purchase cost paid by your ex-partner.
If the transfer of 50% of the home to you did not occur because of a court order, formal agreement or award, then the acquisition cost of your additional 50% interest in the property will be the market value at the date of transfer.
Income Tax Assessment Act 1997 allows you to treat the property in the same way as your former partner. This allows you to treat 100% of the home as your PPOR where applicable.
Now, I understand that you have moved out of the property and are renting it out. You may be able to claim an exemption from CGT for a period of up to six years.
Need to know:
- The rules differ for a property transfer due to a court order, formal agreement or award.
- In a formal transfer, rollover relief can allow an ex-partner to disregard capital gain.
- Moving out of a property solely to gain a tax benefit will not result in CGT relief.
Partner at Chan & Naylor Redlands
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