Ask Paul: Our property has a complicated history, what tax will we owe?

Dear Paul,

My wife and her sister bought land and built a house in Western Australia in 1999, as an equal 50/50 share.

They lived in the property together and paid the mortgage equally. 

In 2007, we had the property valued at $379,000 and my wife bought out her sister's 50% share for $189,500 (so now 100% ownership) and her sister moved out.

My wife also moved out and has leased the property ever since. 

We are about to sell the property (worth about $450,000 now) and are wondering about CGT calculations due to the split purchasing dates.

Is the cost base going to be 50% of the 1999 costs (let's say about $50,000), plus acquiring the remaining 50% in 2007 ($189,500 plus costs)? - Mark

I'm going to send you straight to your tax adviser, Mark. I'm okay at most aspects of investment and have loads of experience when it comes to life and money decisions. Tax, though, is a specialised skill. Let me tell you, I am regularly annoying my tax adviser.

I think, though, that the outcome here will be based on the two transactions. Half the property would have been acquired by your wife at its initial purchase date. The other half would be the gain above the $189,500 she paid to your sister.

Mind you, our tax legislation is complex, and it never ceases to amaze me. So, please head off to your tax adviser. I reckon they will sort this out very quickly.

What is certain is the 50% reduction in tax payable under our capital gains tax system. By any global standard, this is generous and will greatly lower the tax your wife will be required to pay.

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