My mother purchased an apartment in Paris in 2000. In 2004, she migrated to Australia to live with me and has been renting out the apartment. She has recently passed away and I have inherited the apartment. Will I have to pay tax if I sell it?
I am sorry to hear about the passing of your mother.
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While this is a difficult time to deal with things like understanding your tax obligations, it is important that you get things right.
As you are an Australian resident, you are required to pay tax on your worldwide income.
Firstly, this means that the rental income you are now receiving will need to be included in your Australian tax return.
Secondly, if you sell the apartment you will also have to include any capital gain in your tax return.
Because you have inherited the apartment from your mother, when you come to calculate your capital gain, you have also inherited the cost base. The cost base is the original cost in purchasing the property, and can include additional costs such as ownership expenses.
For example, if your mother purchased the apartment for $50,000 in 2000 and you sold it for $200,000, your capital gain is $150,000. There is the potential for some sales costs and ownership costs to also be deducted from the sale price to reduce your capital gain.
Paying capital gains tax on $150,000 may sound like a lot, however there is good news. For assets that have been owned for longer than 12 months you can generally get an automatic 50 per cent discount on the capital gain.
Similar to the cost base, you have also inherited your mother’s purchase date as well. Therefore, as she purchased the apartment in 2000, you are deemed to have owned it for over 12 months.
This means your capital gain of $150,000 will now be $75,000 and it is on this amount that you will pay CGT.
We have discussed the Australian tax implications, however there are likely to be tax implications in France on the sale as well.
I would encourage you to discuss the situation with your tax adviser to gain an understanding of any potential French tax applicable.
If you would like more information on this topic or have another tax question e-mail me at tax.albury@crowehorwath.com.au.
This information is general in nature and readers should seek specialist advice before making financial decisions.
