CASE STUDY: The cost of poor advice. Paying CGT on the sale of the home

A new client recently came to see me.

He was a little hesitant at first as he had been using an accountant, lawyer and financial planner and was apprehensive about the value Metropole Wealth Advisory could give.

He left my office almost in tears when he realised the cost of his poor previous advice.

Given that my client was in the type of occupation where he had a high chance that he could be sued, he owned his family home in a trust using a company as trustee.

He was now in the process of selling his home and then purchasing a new home and was planning to use the same structure as he had previously used – that is buying his new home in a trust.

He was prepared to accept that the loss of the ability to claim the main residence exemption for Capital Gains Tax as a trade off, given his potential litigation risk.

This could not have been further from the truth

There are a number of strategies to protect assets in personal name without owning them in a trust.

The benefit for using alternate structures for your home ownership is that you retain the capital gains tax exemption and the land tax exemption which, for this, client was significant especially when asset protection is part of the alternative structure.

Back to the client’s situation

Had the client executed appropriate documentation when the property was purchased in the trust the main residence exemption would have still been available.

To add salt to the wound his accountant had not accurately monitored the land tax assessments which meant that the client was being undercharged by approximately $12,000 per year and now that he was selling his property, this shortfall will become evident when the purchaser requests a land tax clearance certificate.

While the correct advice would still have the same land tax levied, the incorrect payments will attract penalties that can be as high as 90% plus a penalty interest charge.

Given that incorrect payments had been made over the last 7 years the costs will be significant.

The problem is Land Tax is self assessed so the onus is on the tax payer to ensure compliance even if the assessments are issued incorrectly.

The alternative

Putting together the correct documentation on purchasing the home in the trust would have resulted in the upcoming sale being totally tax exempt which on over $1.1 million capital gain would have saved approximately $260,000 in capital gains tax.

The client’s sense of relief to have identified what not to do next time was very evident.

If the client had not been selling, then appropriate strategies could have been implemented to protect part of the future capital gains from a tax liability on any future sale.

What can you do about this?

At Metropole Wealth Advisory we look at your whole situation from various directions and with over 40 years’ experience we can bring together the skills in tax, structures and wealth creation to ensure an optimal outcome and risk mitigation.

We specialise in:

• Wealth creation and management strategies
• Asset protection strategies
• Estate, Business and succession planning
• Financial and strategic advice
• Risk management and life insurance
• Self managed Superannuation Fund Strategies
• Portfolio Management and review

Why not find out how we can assist you – click here now and we’ll be in contact or call us on 1300 METROPOLE.

from Property UpdateProperty Update https://propertyupdate.com.au/case-study-the-cost-of-poor-advice-paying-cgt-on-the-sale-of-the-home/