capital gain tax

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From: Francis Lam


Hi,
I've purchased a vacant land 6 months ago and would like to sell it now. Currently I'm paying off the land and thus incurring interest charges. I was to initial build my dream home but have changed my mine since then. One option that I'm currently considering is to build a duplex but I feel it's alot of stress for little gain. My other option is to sell the land and run.

Details:
Area: Merrylands
Land Costs $240K
Expected Land sale $350K
Amount borrowed $192K

Question:
1) should I sell the land or build a duplex and rent it out
2)How much capital gain tax would I have to pay if I sell the land
3)If I sell the land, what should I use the money for. At the moment I'm considering to purchase a home and an investment house.
4)Is there any good Tax agent around Merrylands that I can consult
5)At what price should I sell the land to make selling the land a better option then to build a duplex.
6) Is there any pitt falls with selling the land.

Thanks
 
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Reply: 1
From: Dale Gatherum-Goss


Hi Francis!

The capital gains tax is hard to calculate with so little information but, I'll give it a go.

We take the purchase price of $240,000 and add to that the stamp duty of say $6,900 and the legal fees involved in buying the property of say another $500.

This gives us $247,400 and we add to this the following costs:

the legal fees involved in selling of say another $500, the interest on the loan (which I have assumed for this purpose at $192,000 x 7% x 1/2 year) at say $6,700 and the rates for 1/2 year of say another $500.

This leaves us with a cost of say $255,100 and lastly we add the cost of real estate agents fees in selling the land. let's assume these come to $24,900 which leaves our costs at a final figure of say $280,000

from this we deduct the sale price of $350,000 and this leaves a taxable gain of $70,000.

The amount of tax on this gain will depend upon your other income but if we assume the worst case scenario of an income above $60,000 then the tax will be no more than $33,950.

Obviously, the assumptions that I have made are not correct, but this is the process that we would use to calculate your worst case scenario for CGT.

I hope that this helps.

Dale
 
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Reply: 1.1
From: Duncan M


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And if he holds it for a further 6months, he'll get the CGT 50% discount.

A calculation on the additional interest that will be incurred needs to be
done.. Another $6900 in interest for a CGT saving of $16,000 or around a
$10K tax saving, with no regard to the potential additional capital gain..

Duncan.

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<TITLE>RE: capital gain tax</TITLE>



And if he holds it for a further 6months, he'll get =the CGT 50% discount.


A calculation on the additional interest that will be =incurred needs to be done.. Another $6900 in interest for a CGT saving =of $16,000 or around a $10K tax saving, with no regard to the potential =additional capital gain..

Duncan.




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Reply: 1.1.1
From: Dale Gatherum-Goss


Hi Duncan!

You are absolutely right.

Thank you

Dale
 
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Reply: 1.1.1.1
From: Tibor Berenyi


Good work Dale and Duncan - its good to see the nuts and bolts when your just a beginner. I was under the impression that you can only claim the 50% CGT reduction on one property (if you held it for a year or more), and therefore not on any subsequent properties. Is this right or am I misled.


Tibor
 
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Reply: 1.1.1.1.1
From: Duncan M


Hi Tibor,

The discount can be applied to any property held for more than 12 months, as long as its held by an individual.

Regards,

Duncan.
 
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Reply: 1.1.1.1.1.1
From: Dale Gatherum-Goss


Hi Duncan

I hate to look like I'm correcting you, but, the 50% discount is actually available to family trusts as well.

Dale
 
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Sim

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Reply: 1.1.1.1.1.1.1
From: Sim' Hampel


It doesn't just LOOK like you are correcting him, you actually ARE ;-)

It's always good to get some verification on these issues from knowledgable people - don't be afraid to post corrections or cautions on a matter !

Indeed, my own accountant had implied to me that the 50% discount was currently available to family trusts, but it was one of the areas under consideration for change with the reforms that have been mooted.

sim.gif
 
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Reply: 1.1.1.1.1.1.1.1
From: Francis Lam


Does that mean I should hold off and wait for another 6 months to get the 50% CGT discount? My initial thought was to sell the land and use the capital to purchase another property, this way (I think) I'm still eligible for the first home buyers grant.

Is it it a better option to build a duplex instead of selling the land?


Still a bit confuse on what to do!!
 
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Reply: 1.1.1.1.1.1.1.1.1
From: Dale Gatherum-Goss


Hi Francis!

The decision is one that only you can answer. Yes, by holding for another 6 months you will reduce your tax even further by the discount, but, you might miss out on the opportunities along the way.

As for duplexes, there are people better qualified to answer that than me, however, I believe that you should develop a plan of attack with your investing so that you can answer each question based on your goals and expectations from investing instead of being swayed by emotional reasons or something worse.

Does this help?

Dale
 
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