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Is capital gains tax applicable on my father’s house?

My father and I built a house in 2000 in Western Australia and took out a loan for $130,000. My father has lived in it ever since, but we would like to sell it.

The market price is approximately $400,000 for that sort of house. As we have both refinanced against the house, our joint loan is now $165,000.

With my half, after we pay off the loan, I want to build a new house. But the land where I want to build will not be released for another four to six months after we intend to sell.

Will I have to pay capital gains tax (CGT) on the profit I make from the sale of the house even though I will reinvest it in my next property?

I assume that the house was always a primary residence of your father and that he did not pay any rent to you. Therefore, there is no CGT issue.

The fact that you guys borrowed money and it is in your joint names is irrelevant. If you get $400,000 minus $165,000 to pay off the loan, then there is $235,000 profit made on the sale of the property. If your father shares this with you and you bank the money into, say, a term deposit, then you will pay tax on the interest you earn.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Friday, May 13, 2011

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