Goff on Larry Williams
Phil Goff was interviewed on Larry Williams yesterday on whether his CGT would effectively also be an estate tax.
LARRY WILLIAMS: Another thing can you clarify. If somebody inherits a property and they sell a property, you pay capital gains tax on that based on the original cost of the property?
PHIL GOFF: Yeah if they sell it. They don’t pay tax on the inheritance.
LARRY WILLIAMS: So we’ve got an effective estate tax there?
PHIL GOFF: No, no we haven’t. You – if I inherit my father’s house and I keep my father’s house rented out, I don’t pay capital gains tax…
LARRY WILLIAMS: But if you sell it you do which is…
PHIL GOFF: If I sell it because it’s an investment property, yes I’ll pay tax on it like I will on any other investment property. You can’t have it any other way without creating a massive loophole…
LARRY WILLIAMS: Which is really…
PHIL GOFF: No there is no inheritance tax. You pay no tax…
LARRY WILLIAMS: That’s right.
PHIL GOFF: … on a property that you inherit…
LARRY WILLIAMS: Until you sell it.
PHIL GOFF: … unless you sell it.
LARRY WILLIAMS: Yeah, until you sell it which makes it in effect an estate tax…
PHIL GOFF: The same way of any other investment property Larry, why would you differentiate?
LARRY WILLIAMS: No I’m just asking you the question because I spoke to Jo Dylan from Ernst & Young and she said it’s an effective estate tax.
PHIL GOFF: No well she’s wrong.
LARRY WILLIAMS: Is she? She’s an expert in taxes, well.
This is an interesting situation. The family home is not subject to CGT, but it is effectively when you die as far as I can tell.
Let’s say you own your own home and your parents own their home. And let’s say when they die their home is worth $300,000 more than what they paid for it say 15 years ago or at V Day.
Now it is highly likely you will not keep your parents home as an investment property. Partly for emotional reasons, it would be bloody difficult renting out to strangers the home your parents lived in, and you associate with them. But also if there is more than one child, the home generally has to be sold to allow the estate to be divided up.
So in the example above, you would end up with a $45,000 tax bill on your parent’s family home.
Unless I have something wrong, then the family home exemption is only while you live, and it will get taxed as part of your estate unless your children decide to turn the family home into an investment property (which I suspect happens very rarely).