Tax Q&A: Situations when you can claim a CGT exemption

6/7/2018

 

Q: My question is regarding circumstances that prohibited my living in my residence due to having a child with significant disabilities. As such, I was not able to work full-time over an extended period of 15 years and ongoing, so I could not pay the mortgage myself. So I rented in a more affordable location that was closer to my parttime workplace. 

As such, I did not have any other property considered a main residence. The property was purchased in November 1998. I moved in a couple of months later and then moved out after becoming pregnant in March 2000. Could this be a viable situation to claim an exemption for CGT? 

Thank you for your kind assistance, Olivia

A: The capital gains tax main residence exemption is most often calculated based on the number of eligible exempt days as a proportion of total days held. I understand that you moved into the home a couple of months after acquiring it. 


"You might consider transferring the investment property to an SDT. However, please be aware that an SDT cannot borrow from any source"

If you wish to start the exempt day count from purchase date, you must establish the property as your main residence as soon as practicable after acquiring it. If you delayed your move-in because of illness or other unforeseen circumstances, and you moved into the home immediately after the matter was resolved (e.g. after you recover from an illness), you won’t be adversely affected. If you did not move into the dwelling as soon as practicable after acquiring it, you will not be entitled to count the days prior to your move-in as eligible exempt days. 

However, you may be entitled to partial main residence CGT exemption from the period you established the home as your main residence. Section 118-145 Income Tax Assessment Act (ITAA) 1997 allows you to elect to continue to treat the property as your main residence for up to six years if it is used to produce assessable income like rent, and indefinitely if no income is generated. However, the days beyond this six-year limit will not count as eligible exempt days. 

You also might consider setting up a Special Disability Trust for the benefit of your disabled child. Special rules apply to the income from these trusts, and these rules assist with Centrelink means test rules. The disabled person (or beneficiary) must meet the definition of ‘severe disability’. Special Centrelink gifting concessions also apply. Gifts of up to $500,000 by a family member to an SDT are disregarded from Centrelink gifting rules. 

This might assist family members to qualify for carers’ income support. Assets up to $626,000 (at 1 July 2014, indexed annually) that continue to be held in the trust are generally not assessable under the Centrelink assets test. Assets voluntarily gifted to a Special Disability Trust by a family member may qualify for a capital gains tax exemption under section 118-85 of the ITAA 1997. You might consider transferring the investment property to an SDT. However, please be aware that an SDT cannot borrow from any source.

A special tax return may be required for the SDT, and tax is payable on unexpended income of the trust. The beneficiaries’ marginal rate of tax is applied.

Need to know:
- Consider setting up an SDT for a disabled family
member.
- CGT exemption is typically calculated based on eligible exempt days.
- Assets voluntarily gifted to an SDT by a family member may qualify

 

Janelle Bartlett
Partner at Chan & Naylor
Redlands

 

 

If you are happy to see if your question is answered in our magazine or on our website, please email your question to: editor.yipmag@keymedia.com.au
However, if your question is important and you would like advice right away please enter your question here,
and one of our trusted tax professionals contact you ASAP.

 

Can you afford to buy in this suburb? Find out how much you can borrow

Top Suburbs : alexandra hills , balga , thebarton , scarborough , dulwich hill

go back

Get help with your investment property



Do you need help finding the right loan for your investment?


When investing in property, it is important to make sure that you not only have the lowest available rate that you can get, but also have the correct loan features for your needs.

Just fill in a few details below and we'll then arrange for a local Aussie Mortgage Broker to contact you and work out what features or types of loans are right for your needs. We'll even help with the paperwork. Plus an appointment is free.

How soon would you like a mortgage?
What is your Annual Household Income i $
Do you currently own any Investment Properties?
Do you own your own residence?
How much equity do you have in all your current properties?
First Name
Last Name
Where do you live?
What number can we reach you on?
E-mail address
We value your privacy and treat all your information seriously - you can check out our privacy policy here