When purchase doesn't go ahead and estate planning
When purchase doesn't go ahead
Q I have two investment properties and was investigating the purchase of a third in Sydney. I found a unit and employed a solicitor, had a building inspection done and paid the 0.25 per cent non-refundable deposit if the contract was terminated before the end of cooling-off period. Following the report from the building inspection I decided the property wasn’t worth purchasing. The total amount I forfeited in costs was $1750. Can I claim these costs as a tax deduction?
A Not unless you’re in the business of buying and selling properties for profit as part of your business. Julia Hartman
Q I have eight investment properties in my name. I'm 60 years old and planning for retirement. I plan to sell four properties when I stop working, keeping the other four properties, which will be almost fully paid off (from the sale of other four properties) and live on rental income. I intend to leave all these properties for my only child after I die but I understand that she will have to pay capital gains tax (CGT) and stamp duty as any transfer/sale attracts tax. This could be huge and might involve some or all of the four properties to be sold. Is there a way around this?
A Under Section 128-10 of the Income Tax Assessment Act 1997, providing she isn't an overseas resident, your daughter won't be liable for CGT when the properties transfer from you to her upon your death but when she eventually sells she will be up for CGT on the gain during your period of ownership and hers. That is unless you purchased any of the properties before September 19, 1985. Pre-1985 properties will transfer with a cost base of the market value at the date of your death and should she sell that property within two years of your death then no CGT would be payable anyway. Stamp duty shouldn't be payable when the ownership of a property changes on death. If she was to sell them when you died it would be the purchaser who would pay stamp duty. A little trick you may like to consider when selling off properties to reduce debt is to sell your own home so there will be no CGT to reduce the sale proceeds then move into one of the rentals. If that is still your main residence when you die your daughter will inherit that at market value at your date of death, with none of the CGT liability you would have incurred if you sold it within your lifetime. Julia Hartman
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For more Q&As, see Australian Property Investor magazine, available from your local newsagent.
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Meet the panel
Julia Hartman is a chartered accountant, registered tax agent and founder of BAN TACS Accountants Pty Ltd. She's also co-author of Saving Tax on Your Investment Property, available from www.businessmall.com.au.