Capital Gains Tax – Parents Owning 50% of Children’s Primary Residence

Question

My daughter & son-in-law cannot afford to buy a house of their own.
So as good & decent parents, we have helped.
In so doing, our names appear on the Title Deeds as 50% owners.
    
If or when this house is sold, are we, the parents, liable to pay capital gains tax on our 50% share?

Answer

Because this house is not your PRIMARY residence, you will be subject to the rules and laws governing capital gains tax.
Your daughter & son-in-law, on the other hand, will NOT be liable for any taxes on the sale because it was their primary residence.
    
      

Tax Break 

Try not to sell this property before 12 months after the offer to purchase was accepted has elapsed. This way only 50% of any gain will be taxable.
    
    

Example

The above house was purchased on 19 May 2007 for $200,000.
It was sold on 14 January 2008 for $235,000.

The capital gain is $35,000.

It is 100% taxable because the property was only held for 7 complete months.

Assume the property was sold on 23 August 2008.

The capital gain is $35,000.
Only $17,500 is taxable because it was held for more than 12 months.

Because it was the Child’s PRIMARY residence, NO capital gains tax is payable by the Child.
Capital gains tax, however, is payable by the Parents.
   
In this example, $8750 is taxable if held for more than 12 months & $17500 if held for less than 12 months.
   
      

IMPORTANT NOTE

The date you enter into the contract to purchase the property, NOT the settlement date, is the date a capital gains event commences.
    
The date you enter into the contract to sell the property, NOT the settlement date, is the date the capital gains event "hatches".
     

 About The Author

Warren Kruger is an Australian Tax Specialist and Advisor.

For a FREE Report "7 Essential Strategies to Reduce Your Taxation NOW!",
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About The Author

Warren Kruger is an Australian Tax Specialist and Advisor. For a FREE Report “7 Essential Strategies to Reduce Your Taxation NOW!”,enter your name and email address in the Opt In Box located on the top right hand side of this article.

Tagged as: 12 months, 23 august, amp, capital gain, capital gains tax, nbsp nbsp nbsp nbsp nbsp, offer to purchase, parents, settlement date, tax break, title deeds