Information is power….and money.
We have seen horror stories when people jumped into things without a full (or any) understanding of the consequences.
We have also saved dozen of clients before they jumped into things without looking. Sometimes the pond you intend to jump into looks nice, safe and harmless when it is not.
Here is an example.
One client who was getting ready to begin with us under the Canterbury system, mentioned his widowed mother would soon be moving in permanently with him and his wife. The mother would be paying $350,000 for the right to live in the home for life. This deal was less than 24 hours away from being finalised when we heard about it. The client instantly saved themselves $162,750 by mentioning this to us. Here’s why.
It would be necessary for the $350,000 payment to the son to be declared as a capital gain. The son was receiving $350,000 for “granting a right” to his mother. The tax to be paid on the $350,000 would have been $162,750.
In other words the $350,000 life savings of the mother would have evaporated down to just $187,250 when the next tax return was submitted and the tax paid. That’s not quite the deal the parties had in mind.
Canterbury was able to point out that a mere change to the structure of the planned agreement would fix this problem. Instead, the mother would buy part of the son’s home for $350,000. There is no capital gains tax to be paid by the son for selling part (or even all) of his principle place of residence to his mother. No capital gains tax applies on the part (or full) sale of a principle place of residence.
Now the son, his wife and the mother share and own a principle place of residence together – and better still no capital gains tax will be payable when any of the parties eventually sell or die. The capital gains tax free status of the property is ongoing for all parties because all resident owners are owner-occupiers.
What a harsh penalty it would have been – to lose almost half of the mothers life’s savings in the blink of an eye, just for getting the structure of the agreement wrong. Sometimes winning or losing a lot of money comes down to just a few strategic pieces of paper.
You never know what Canterbury might find in your situation when you meet us.