Cap Gains on Quick Renos?

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From: Simon St John


Hi everyone!

One question about buy/reno/sell that I am unclear about is bank financing and the cap gain situation.

I gather if you are trading property in this way you have to pay CGT?

How is this calculated (eg: Say you purchase at $150K, reno for $25K and sell for $220K)

Also, how do people structure their finance - just a mortgage of choice (excuse the pun!) that allows for early repayment. How do banks view people who "turn over" finance within 1-3 months in this way.

Cheers, Simon
 
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Reply: 1
From: Robert Forward


Hi Simon,

Those that trade properties will do so usually in a company or trusts name. It won't be in their own name due to the CGT.

If you do this as a business then it's seen by the ATO as a business trading venture and thus taxable at company rates, visa versa, CGT for companies is only 30% anyway. You just don't get the deduction allowance after the first 12 months.

And the banks, they don't seem to have a problem cause most people that trade properties will also have a number of buy and hold properties that the bank has a mortgage over anyway. The bank will see this trading as an income/cashflow for the business and will lend on that value too.

Anyway, just my thoughts on what I'm doing.

Cheers,
Robert

Property Inspection Reports @
http://www.creativefinance.com.au

The Sydney "Freestylers" Group Leader.
 
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Reply: 1.1
From: Simon St John


Thanks Robert!

Much appreciated,

Simon
 
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Reply: 1.1.1
From: Owen .


Simon,

I kind of forced the issue with my bank as I did a buy/reno/refinance/hold recently which they did quite happily. I immediately asked for more money to do a buy/reno/sell and they weren't that happy it so they gave me a large LOC instead that will hold the whole capacity of the purchase and reno. This way there will be much less paperwork for them and I will have the availability of funds I need. I asked for this originally and they had said No. Did it anyway and they have now come to the party.

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"
 
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Reply: 1.1.2
From: J Parker


Hi Rob!,

Further to that question... when does the ATO classify it as a business? For example, if I was to buy/reno/sell in a short period (less than 3 mths) once or twice a year, is it seen as a business?
Because I earn very little, wouldn't it be better for me to do this in my own name, as I pay very little tax anyway? What benefit (if any) would a trust be in this situation?
Cheers, Jacque :)
 
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