The 1st January doesn’t just herald a New year, it is the commencement of the Land Tax year. If you own a property on the 1st January, which is not your principal place of residence, the Government will charge you land Tax. It isn’t proportionate, once the 1st January ticks over, you are liable for the full amount.
If you are selling property, your Contract for Sale should make Land Tax adjustable. This means that, the new owner will adjust in your favour the amount of land tax for the portion of the year that they own it. For example, if you settle on 31st January, you will have added to your purchase price 11 months of land tax paid by the Purchaser, leaving you to only pay 1 month.
The other tax that most purchasers are mindful of is Capital Gains Tax. The ATO will tax you on any gain you have had on your property. For example, if you bought your property at $500,000.00 and sell it at $1,000,000.00, the ATO will tax you on $500,000.00 capital gain.
The 1st exemption from this capital gain is, that it is your principal place of residence. In other words, you live there. Another exemption is for rural properties, where the land is being used for primary production.
There is another exemption not published very often. Properties purchase before September 1985, do not attract any capital gains tax. This week, we were faced with a conundrum, regarding capital gains tax. The fact were as follows:-
- Mum and Dad purchased a property in the 1960’s.
- Dad passed away in 1994, passing the whole of the property to Mum;
- Mum moved out of the house in 2005, making a property up the coast her principal place of residence;
This was an interesting matter as, although mum and dad owned the property before 1985, dad passed his share to mum after 1985. Let’s break this down:-
- Mum’s share is definitely exempt as she owned it before 1985.
- If mum and dad owned the property as joint tenants, the property was not transferred from dad to mum, but done by way of a Notice of Death. On this basis, the joint tenancy that allows people to share the property works to automatically pass the property to the person who is still llving, Therefore, there is no capital gain.
- If mum and dad had owned it as tenants in common, dads share would have been transferred to mum and therefore his share would be liable to capital gains tax.
- If mum and dad did own it as tenants in common, mum would be liable for capital gains from 2005 until the sale.
Fortunately, mum and dad were joint tenants. Therefore, mum has saved approximately $150,000.00.
Therefore, mum would have to pay land tax between 2005 and 2020, but now is exempt from capital gains.
It is always a complicated topic and purchasers should get good advice on capital gains protection before they purchase a property.