11 Apr Tax Q&A: CGT And PPOR
Q: My husband and I owned two properties when we divorced. We separated and he lived in our PPOR for three years, while I lived in the investment property.
Upon divorce, I received both properties in the settlement.
I subsequently rented out the property my husband had been residing in (our former PPOR). Over the next few years, I lived in the investment property, then subdivided it and sold the existing property. I kept the new property as an investment, before moving back into my previous PPOR.
I stayed there for one year, and then moved back into my newly built property, renting out my old home. Two years later I moved back into my original PPOR and sold the newly built property.
I have since moved into a rental share house and rented out my previous PPOR. My question is: will I be liable for CGT when my PPOR is sold?
Kind regards, Carolyn
A: The CGT treatment would largely depend on the choices made by you and your ex-husband.
The main residence CGT exemption can potentially apply to your original PPOR (Property A). However, whether the capital gain/loss from the sale of Property A would be entitled to a full or partial main residence CGT exemption would depend on the choices made by you and your ex-husband at various points in time.
Generally, a taxpayer would be entitled to full main residence CGT exemption on the sale of a dwelling if they had established the dwelling as their main residence as soon as practicable after the dwelling was acquired, and if the dwelling has been their main residence for CGT purposes for their entire ownership period.
“Main residence exemption rules contain some special provisions dealing with marriage breakdown situations”
Normally, a taxpayer and their spouse can only treat one dwelling as their main residence at a single point in time.
The main residence exemption rules contain some special provisions dealing with marriage breakdown situations, under section 118-178 ITAA 1997.
You may be treated as having owned your ex-husband’s 50% interest in Property A from the date it was acquired by your ex-husband. If that is the case and your ex-husband has always treated Property A as his main residence for CGT purposes, then the main residence CGT exemption can apply to the 50% ownership interest of Property A for the whole ownership period of your ex-husband.
To gain full main residence CGT exemption, you need to make a choice when lodging your income tax return in the income year in which Property A is sold to treat Property A as your main residence for CGT purposes for the whole ownership period of the property (having never treated Property B or any other property you own as your main residence for CGT purposes throughout the whole ownership period of Property A).
You should also make an election to apply the temporary absence rule under section 118-145 during your entire period of absence from Property A, to continue to treat it as your main residence for CGT purposes (eg during the time you lived in Property B1 and B2 and the rental share house).
This is a complex scenario and I strongly suggest that you seek personal advice to analyse this in detail and confirm the CGT treatment.
Need to know
– Special tax provisions exist to deal with marriage breakdown situations.
– You can generally only treat one dwelling at a time as your main residence.
– You may be treated as having owned your exspouse’s interest in the property from the date they acquired it.
CEO of WSC Group
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Originally Published by: https://www.yourinvestmentpropertymag.com.au/tax-questions/tax-qanda-cgt-and-ppor-247596.aspx