People often get confused about this. I am surprised your tax agent hasn't been able to explain it!!
If she inherits the property from you, since it isn't your main residence, she isn't exempt from CGT but rather, she inherits your cost base in the property. So if you bought it pre-CGT, its pre-CGT for her as long as she sells within 2 years, but if she sells after that, her cost base is the market value on the date you passed away. If you bought it for $500K, she gets that cost base, so whenever she sells, she will calculate her gain with the $500K cost base. Note that this assumes that the property has never been your main residence and that you currently have another property you own that you treat as your main residence.
But a few things to note:
- if you sell to her now, as well as CGT there will be stamp duty on the transfer of the property into her name.
- However, if you currently pay land tax on the property since it isn't your main residence, if you sell to her then she should be exempt from land tax. Not sure how much that would be worth to you each year?
- In calculating your capital gain on transferring the property to her - have you factored in all the costs you had incurred in holding the property? Sometimes people (incuding accountants) forget this in situations like this where its being rented to family for below market value rent. If you acquired the property after Sept 1991, then the costs that you have incurred on the property (Rates, building insurance, interest, repairs etc...) can be added to the cost base and therefore reduce the capital gain IF you haven't claimed them as a tax deduction.
- If you sell to her now, and she lives in it and doesn't have any other property as her main residence, gains arising after she becomes the owner can be exempt from CGT as her main residence, however if you keep it in your name, assuming you have another property as your main residence then it will continue to accrue extra capital gains until the property is transferred into her name under your will. These extra gains after 1/7/27 are likely to be calculated using the new indexation approach rather than being able to use the current 50% CGT discount (the discount can still be used for the gains that accrue before 1/7/27).
- If you sell to her now and she separates from a partner in the future - that might create a situation where they are able to obtain some of the property in a settlement (I dont know family law so can't comment on this)
- If you sell to her now, her assets test for any Centrelink benefits changes as she is then a homeowner. Not sure if that's at all relevant, but worth mentioning.
- If you "sell" to her now, but aren't actually receiving the money, then the value counts in your assets tests for aged pension purposes (if relevant) and also for things such as the fees for aged care places (if relevant in the future) for the next 5 years. If you keep it in your name, then it will count as an asset for those purposes for as long as you own it. It's possible that starting the 5 year clock on reducing your assets might have a value for you down the track, or it may not.
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