Cgt

[madmurf]

Hi

I have a question on how CGT is calculated.
I purchased a block 12 months ago and are about to complete a construction of a spec house.
How is the CGT calculated?.

Is it based on the block only with the building cost including carpets and garden calculated as capital costs.

Is the 50% discount for the CGT applied on purchase date of the block or completion of house construction.?

A working calculation would be very helpful.

Thanks

[duncan_m]

Hi

I have a question on how CGT is calculated.
I purchased a block 12 months ago and are about to complete a construction of a spec house.
How is the CGT calculated?.

Is it based on the block only with the building cost including carpets and garden calculated as capital costs.

Is the 50% discount for the CGT applied on purchase date of the block or completion of house construction.?

A working calculation would be very helpful.

Thanks


Being a new home.. you may wish to consider the GST implications as well :(

[madmurf]

Duncan

Base it on the fact I sell it 6 years down the track.
How will it all work?

Thanks :confused:

[duncan_m]

Duncan

Base it on the fact I sell it 6 years down the track.
How will it all work?

Thanks :confused:

I cant tell you.. all I know is, its a new home, when it sells for the first time the Govt is going to want some CGT _AND_ some GST... of course the GST you paid on the construction can be claimed back, if you were registered at the time.. I'll stop here, way out of my depth.. sorry.

[julia]

Madmurf,
If you purchased the land with intention of buidling a spec ie with the intention of reselling CGT does not apply because the profit is normal income. If it is normal income you have got to consider whether you meet the definition of enterprise for GST purposes and this includes one off transactions. If you are an enterprise (I think you are) and your turnover exceeds $50,000 you have to register for GST. If you are in the business/enterprise of building specs your turnover includes the selling price of the property so you are required to be registered for GST and remit 1/11th of the selling price to the ATO but you will be entitled to input credits.
If on the other hand it is a domestic rental property then your enterprise is input taxed and none of your actual turnover counts towards the $50,000 turnover test so you are not required to be registered and regardless of the 5 year rule on new buildings you will not have to charge GST when you sell. Further as you are selling an investment rather than being in the business of building properties you will be subject to CGT and the 50% discount if held for more than 12 months.
Confused? Yes it is a big issue. I am just finishing off a booklet on the topic this weekend. It will need some time for proof reading and discussion but should be on my web site in a couple of weeks. It will be in the free publications section.

Julia Hartman
julia@bantacs.com.au
www.bantacs.com.au

[madmurf]

Hi Julia

Excellent response and very informative. :)
I would fall into the second category. Investment not an enterprise.
Now when the house is complete, what time would it need to be rented for to satisfy the ATO.
The other question is based on this as an investment and subject to CGT with the 50% discount after it is held for more than 12 months.
That time period of 12 months. Is this from the time of the block purchase or the time of construction being completed.

Cheers :D

[Ausprop]

my understanding is that for CGT you are looking at contract dates, not title changes. so it would start from the date of your offer to purchase land. always remember that when dealing with land it is the LAND that is the key issue, buildings and improvements are just things stuck on top of the land that happen to be attached to it!

[sue78]

It's the date you signed the contract to purchase the land. So if you have owned the land for more than 12 mths then you are only subjected to pay cgt on 50% of the profit. However, if you rent it out then I think it's from the date it was firstrented out and you have to have it rented out for more than 1 year before you only pay tax on 50% of the profits.

What we did was moved in for approx 4 mths, actually I don't think we physically lived there for that long but we have phone and electricity records that dates back to 4 mths, plus it took us another 2 mths to sell. There's no time frame on how long you live in there but as long a syou move in, have the bills in your name, have all your furniture there, you don't need to pay any cgt.

[Brizzy Boy]

Julia,
I think I am going to have to call in to you office soon, sounds like I might have to give away the accountant I have had for the last 25yrs.

Cause I have signed a contract for a house and land package, still waiting for registration of the land, whilst having to get extentions on my loan as I have had no draw downs yet. Again looking at property in the area that I will finally get to build has gone up considrably above my fixed price contract.

I have told my wife that I want to sell once we have had this IP for 12 months, my understanding is from the above the date of the 12 months starts at date of contract, "in this case December 04". So the 12 months is up December 05, if the house is completed say July 05 I could sell after December 05, thus not incurring the full CGT.

Regards
John

[julia]

Madmurf,
Question of fact, longer the better & extra evidence would help. 12 months from time block purchased. No first rented out rule, Sue 78 is using a different concession.

Bizzy Boy,
DId you buy with intention of building to resell or keep as a rental. If to resell forget 12 months rule as CGT does not apply.

Julia Hartman
julia@bantacs.com.au
www.bantacs.com.au

[thefirstbruce]

Hi Julia, thanks for your stream of quality postings.

I too will consider visiting your office. Have been disappointed by several accountants in the last 4 years around your area. Love your new website design. Hope your round Oz trip is fun. Must be great to be able to work anywhere from a laptop.

[Brizzy Boy]

Hi Julia,
had bought with the intension of renting the property out as an Ip and there has been some conciderable capitol growth even though the place is yet not complete, doing my sums I could do better buying established homes in the servicability aspect. Now have the intension that once complete, having the place tenanted and placing the place on the market. "I had never intended to sell", so how does CGT affect this senario.

regards
John

[julia]

Bizzyboy,

As long as you can convince the ATO it was always your intention to build a rental you will get the 50% CGT discount if you sign a contract to sell 12 months after you signed a contract to buy the land. This is assuming you are not a builder or do this sort of thing regularly.

Thanks to all those offers to visit my office and I do hope you do but it would be better to ask for Cathy Jones as I will most likely be travelling. Though I will see clients on the road as this helps me claim my trip as a tax deduction, the web site has my itinerary. I will still be maintaining the web site so will still need to visit this one regularly for ideas of the sort of informtion that is needed.


Julia Hartman
julia@bantacs.com.au
www.bantacs.com.au

[Brizzy Boy]

Thanks Julia,
you you have put my mind at rest.
The only plac I have ever built is my PPOR, which I will not be moving from.

Thanks again
John :)

[XBenX]

Bizzyboy,

As long as you can convince the ATO it was always your intention to build a rental you will get the 50% CGT discount if you sign a contract to sell 12 months after you signed a contract to buy the land. This is assuming you are not a builder or do this sort of thing regularly.

Thanks to all those offers to visit my office and I do hope you do but it would be better to ask for Cathy Jones as I will most likely be travelling. Though I will see clients on the road as this helps me claim my trip as a tax deduction, the web site has my itinerary. I will still be maintaining the web site so will still need to visit this one regularly for ideas of the sort of informtion that is needed.


Julia Hartman
julia@bantacs.com.au
www.bantacs.com.au


Just checked out your site again Julie (its been a while) some interesting information, I found the travelling information quite interesting