My Wife was fortunate to be a beneficiary in a will about 20 years ago where a rural property was split equally with several others. The property has not been used for income generating purposes - just used as a holiday cottage and is now worth much more than when the place was inherited. So will CGT apply with the sale of this place, and if so how is it calculated? The property would presumably have had an assessment for probate purposes back at the time of the inheritance, which I guess would be the starting point for an initial valuation, or can one use some other method for determining a value at that time? My wife is not in receipt of an income.

Any advice appreciated

barkly

Hi

You should talk to an accountant for advice, but my understanding is yes, CGT will apply as the property is not a primary residence.

If you don't have a valuation from the time the property was acquired it may be acceptable to use the valuer-general's value if you have an old rates notice, otherwise you may have to employee a quantity surveyor or other professional to calculate the base value. Your wife's tax liability would then be calculated on 1/20th of the increase in value. The tax payable would be discounted by 50% as the asset has been held for more than 1 year.

Paul

I think paul assumed there were 20 people. It would be divided by the number of owners (assuming they all own the same %) If not they will get their % and pay CGT on that (at 50%.
What was the ownership before inheritance? If it was a PPOR that's fine but if it was not you may be liable for the CGT owed before ownership. If the previous owner purchased it prior to 1958 there would be no CGT.

Check with you accountant of course.

Sorry. Yes, it was early and I confused 20 years with 20 shares!

Thanks for your responses - appreciated.

Yes I will be checking with my accountant - it is just that I like to get a 'feel' for this sort of thing first so I know what sort of questions to ask.

The property prior to wife inheriting her equal portion with the others was privately owned as a holiday residence and acquired back in the 1960's (I think) so not prior to 1958.
So the CGT is based on the difference between the the initial inherited value and its sold value - and in their equal proportions and then discounted 50% for holding longer than 1 year. But at what rate is the CGT applied to that capital gain in the first place? All of it or some % of the total gain?

Thanks

barkly

Sorry that should have been 1985 (not 1958) Got confused with my birthday. haha.

OK I'll give an example.
Say the property was inherited at $200,000 and is now worth $400,000.

So the capital gain is $200,000. Halve it = $100,000. This is very simplified as there are other things taken into account.
Say there are 5 people, then each person has to pay tax on $20,000 each.

So there is no set rate. The $20,000 is added to your income for the year in which it is sold. So if your wife has no income she will pay tax on $20,000 (not much) whereas someone on a high income will pay a lot more. So if their tax rate is 30% they will pay $6,000 tax.
To lessen the tax some people salary sacrifice money to super. There are other ways to lessen the tax also.

Yep what Travelbug said ^^

Normally your exempt from any CGT if ;
1. it's bought or inherited prior to 1985 ( 26 years ago)
2. It's your only PPOR from start to finish
3. It's your only declared PPOR as per 6 years rule
4. it was inherited via a will and you sold within 24 month
5. Special approved circumstances ( ie Part of the royal army or reserve etc..)

Either way there are ways to reduce or low the CGT if done correctly.

Regards
Michael

Thanks travelbug and shape,

I have now developed a much better understanding of the CGT scene and I do believe my wife will now be subject to the tax. Our accountant will earn his fees at the time it all needs to be assessed.

Your responses with the others have been much appreciated.

thanks again

barkly

What Michael has said is true. I would avoid using valuer general's value from back in the day as it will more than likely be undervalued which will increase your gain. best if you have value established as of probate. to ball park the amount add 50% of the proportionate gain to your taxable income and then look at how much additional tax will be paid. ask you accountant about how you can limit your tax liability and do it before you sell the property.

Cheers
Mark