Mr Taxman
Change the way you feel about taxes.
Get informed and discover what the taxman doesn't want you to know.
Sharing it with Australia, Mr Taxman is a regular Woman’s Day columist and TV finance commentator
  • click to visit Mr Taxman on Twitter
  • click to visit Mr Taxman on FaceBook
  • rss

CGT after moving into investment property

Dec 14, 2012

Reader question: We purchased a house with our son 8 years ago. We rented it out for 4 years and then my son moved in but we (my husband and I) continued to receive rent from some of the bedrooms my son rented out to cover our mortgage.  We have now sold our 50% share to our daughter-in-law so now my son and his wife own the house and are living in it.  They plan to live there for quite a few years and renovate it.  How does Capital Gains affect him once he sells it (maybe in 10 years)?

What great parents you are by giving your son a helping hand into the property market.  My old man helped me out with my first property when I was 19 and I was forever grateful to him for the best investment decision that I have ever made. 

There are two separate ownership interests here which we must consider for Capital Gains Tax (CGT) purposes – your son’s 50% share and your daughter-in-law’s half interest.  As the interests were acquired at different times and  circumstances, the CGT consequences are not the same for both.

Assuming that they continue to live in the property til disposal, there will be no CGT applicable for your daughter-in-law’s share as it would be treated as her principal place of residence since acquisition. 

However, as your son originally rented out the property he may be up for some CGT despite him living in it for the majority of the time. Like, your daughter-in-law he will get exemption for any CGT for the period that he lives in the house but has to pay CGT on his 50% share for the first four years of that it was rented out.  Unfortunately, as he didn’t live in the house before renting out, he is excluded from the 6 year Principal Place of Residence exemption which could have avoided CGT altogether.

The simplest calculation of the capital gain would be to use an official valuation (by a registered valuer) at the time that he moved in four years ago to determine the growth of the property whilst it was an investment. 

In absence of any official valuation, he can pro-rata the capital gain made between the time that he rented the property out (4 years) and the total length of time that he holds the property.  If they sell in say ten years from now, the taxable capital gain that would be is 4 /18ths of the net capital gain made after factoring in purchase and sale costs.  As he has owned the property for more than 12 months, he can reduce this amount by 50%.


This article first appeared in the November 2011 issue of Your Investment Property Magazine Copyright Key Media Pty Ltd 2011.


Tags: CGTChildrenFamilyPersonal taxProperty

Author: Mr Taxman


"The links and resources posted by you in the blog are very useful for me! I was looking for this exact and particular i nformation for a long time. Thanks"

By: Student Accommodation Investment on Oct 21, 2014 1:13PM

"In this situation my understanding is that because the property was first used as a rental property, and then became the person’s residence, the days of ownership method must be used to work out the CGT payable - not a valuation as you have suggested. Is this correct?"

By: Allan Travers on Jan 13, 2015 6:50AM

"Have a rental property for 12 years..thinking of demolishing and build a new property, live in for 1 year then rent for under 5 years and then sell.While property is rented I will be leaving in another place(rent or buy but not claiming as my residence).How CGT works and can expenses(interest etc) be claimed. Thanks Chris"

By: Chris on Jan 17, 2015 1:31AM

"My principal residence is a duplex. My husband has dementia - we rent a house out and would like to move in, so there is room for a carer. How will this affect our capital gain and Aged Pension. Should we rent or sell duplex. We have $210K Mort. on rental prop. Should I transfer this to duplex if I rent out We have no super. Joan"

By: Joan McAteer on Aug 02, 2015 12:50AM

Post a New Comment

Media Availability

Are you interested in booking Mr Taxman for a speaking engagement or requesting his viewpoints for an article?

comments-rhsLatest Comments

  • "My name is Glenn Baker and i live in USA Florida and i am a happy man today, I told my self that any Loan lender that could change my Life and that of my family, i will refer any person that is..."

    By: Glenn Baker at Mar 22, 2018 9:30PM

    Post: Claiming car expenses

  • "Hello Everyone I pray this email finds you well and in good condition. I'm Mr. Kenneth Abrighten... manager of Kenneth Abrighten Business Home. I offer personal, commercial & business loan with..."

    By: Kenneth at Mar 22, 2018 4:04PM

    Post: Money Magazine's Book of the month: 101 Ways to Save Money on Your Tax - Legally!

  • "This is to inform the public that john, personal loan lenders in the financial opportunity to those who need financial assistance. We provide a 4% interest rate loan to individuals, firms and..."

    By: john at Mar 22, 2018 3:59PM

    Post: Insurance policy drop-off expected from budget pain

  • "Hi, I started a new job with a car company. They provide me with a motor vehicle that I have to test drive in my own personal time for a few weeks at a time and provide them with feedback. They do..."

    By: Bicky at Mar 07, 2018 2:46AM

    Post: Claiming car expenses

  • "Hello, Am I able to claim work related car expenses using the cents per kilometre method for work use of my wife car? i.e. driving to meetings and picking up parts etc. The car was purchased by..."

    By: Nate at Mar 06, 2018 7:01AM

    Post: Claiming car expenses