Calculating CGT Liabilities

Can I please get your assistance in this complex matter as my client is considering selling a property he acquired from his father?

In this case, my client, the son, entered an agreement with his father to be added on to his father’s principal residency property “title” back in 2011 for $130,000. My client already owned another property at the time, therefore ruling out principal residency exemptions. My client and his father became joint title holders of that property, and the son needed to be on that title to help his dad out with finance.

The value of that property in 2011 was around $220,000.

In 2019, my client bought the property off his father for a further $95,000 and became the sole title holder. As my client owns other property, it still wouldn’t be his sole principal residency. The value of the property in 2019 was $360,000.

My client is considering selling that property, and the value has risen to $500,000.

His father bought the house back in 2007 for $195,000.

My two questions are:

Will my client be liable for CGT? I’m guessing he would be, and secondly, how would we calculate it, seeing he was part owner and then became 100% owner?

I would kindly appreciate your help with this to advise correctly.

Answer

We confine our comments to your client’s circumstances (the son).

The other $30k is for purchase and selling costs, but there may be third element additions to the cost base for renovations etc.

If the property is sold for $500k, there is a potential $250k capital gain to consider.   

After the application of the 50% discount, $125k remains.

After checking for capital losses, you should check online whether your client can make catch up superannuation contributions.

This could wipe out most capital gain, but we acknowledge the 15% contributions tax.