With his late father’s house sold, Ashton needs to know about the capital gains implications of the sale. Chartered accountant GAIL FREEMAN has the answers…

Four years after his death, Ashton has sold his father’s house.

“I was told that, as it was his main residence, I won’t have to pay capital gains tax (CGT) but that doesn’t seem right,” Ashton said when he came to see me about it.

I told him my recollection was that his father had lived out of town. 

“Is that correct? Your answer could well impact my advice particularly if the area of the land was greater than two hectares,” I said.

Ashton told me his father had a bush block where the land couldn’t be used for anything viable. He brought the plans showing the area of the land was five hectares and it had been bought on February 14, 1998.

“Well, Ashton, that raises two issues for me in relation to CGT,” I said.

“Firstly, the residence and up to two hectares surrounding it, if used for private purposes, form your father’s main residence and can be exempt from CGT. It clearly is exempt from CGT up to the date of your father’s death.

“After that we have to look at the Australian Taxation Office’s main-residence rulings. If the house is sold within two years of the date of death and the property was used as his main residence and was not used to produce income then the capital gain is disregarded on that portion of the sale. 

“There is a further provision that extends the two-year limit with certain conditions. Provided that in the first two years after the date of dad’s death more than 12 months is spent addressing one of the following:

• A challenge to either the will or the property ownership. 
• A provision in the will that delays disposal.
• The estate is complex, which delays administration.

“In addition, the residence must have been listed for sale as soon as practicable after resolution of the above, the sale was completed within 12 months and the delay was not caused by waiting for the property market to improve to get a better price, renovating the property to improve the sale price, or the delay was caused by inactivity on the part of the executors and the required extension is no more than 18 months. “Clearly that does not apply here, so you need a valuation prepared by a professional valuer as defined. Therefore, under your circumstances, there will be a capital gain on the main residence two hectares from the date of death to the date of sale.”

Ashton said it was just as well he checked.

“There is also a second capital gain on the rest of the land from the date of purchase to the date of sale,” I told him.

“As the land has little intrinsic value and, based on my experience, the main value in this property lies with the main residence. There needs to be an additional valuation at the date of purchase to determine the percentage of the purchase price that relates to the land. This percentage is also applied to the sale price to determine the selling price. 

“There may also be holding costs that can be offset against the capital gain. However, I will review these when I have all the documents available.”

Ashton said it all sounded more complex than he’d imagined, but that “the final figure will probably be less than I thought”.

If you need assistance with capital gains tax or any other tax related matter contact the friendly team at Gail Freeman & Co on 6295 2844, email info@gailfreeman.com.au or visit gailfreeman.com.au

Disclaimer
This column contains general advice, please do not rely on it. If you require specific advice on this topic please contact Gail Freeman or your professional adviser.