11 Jul Tax Q&A: What Is Post-CGT Property?
Got tax queries regarding your property investments and wealth creation strategies? Our experts are on hand to answer them.
Q: I bought my house in Melbourne in the third quarter of 1985. I do not have paperwork to show the date of sale on contract but have evidence of settlement on 1 November 1985.
I have had to sell this house earlier this year under a Family Court Order, in order to pay off 50% of the proceeds to my wife, from whom I have been separated. Given the sale was due to a marriage breakdown, do I have to pay CGT, even though I have no documentary evidence about the actual date of purchase other than the date of settlement? CGT came into effect on 20 September 1985.
If the ATO determines that the property was purchased after 20 September 1985, then CGT will be payable.
The house was my PPOR from 1985 to 2001, when I moved to Canberra for employment purposes. The house was rented out from March 2001 to December 2016 while I have been renting in Canberra.
Will the six-year exemption rule apply, ie will CGT be taken into account from 2007 rather than 2001? Will valuation of the house be required from 2001 or 2007 to assess the capital gain? I bought the house for $80k and sold it for $570k.
Many thanks, Jimmy
A: Generally, for capital gains tax (CGT) purposes, the date when you will be deemed to have acquired the property is the date on which the contract is signed (see Section 109-5 of ITAA 97, which applies where CGT event A1, most likely to be applicable in your case, is triggered).
Only if there was no contract between yourself and the original vendor when the property was purchased (ie the purchase agreementwas in some other form, eg verbal) can the date of settlement (1 November 1985) potentially be used as the acquisition date for the property. Therefore you will need to find the contract and check whether it was signed before 20 September 1985.
“If the contract cannot be found, the property will be a treated as a post-CGT asset and subject to CGT”
It is important to note that if the contract cannot be found, the property will be a treated as a post-CGT asset and subject to CGT.
If the contract is not found and it is concluded that the property is a post-CGT asset based on settlement date, then the cost base of the property will be deemed to be the market value of the property in March 2001, being the month when it was first used to derive assessable income (see s118-192 of ITAA 97).
As you did not purchase another property to be used as your principal place of residence (PPOR) during the time you owned this property, as you were renting during this period, the six-year absence rule can be applied from March 2001, meaning that the property will continue to be treated as your PPOR for a period of six years from that date. Therefore it will be exempt from CGT for that additional six-year period.
Your liability for capital gains tax will then be apportioned by calculating the number of days from March 2007 to the date the property was sold, divided by the total ownership period (from March 2001 to the date of sale only).
Need to know
– If there is no contract, the settlement date could be treated as the acquisition date.
– The cost base of a post-CGT property is the market value when it first generated income.
– The six-year absence rule applies as long as there’s no new PPOR.
CEO of WSC Group