Capital Gains On My Block Of Land

[hrhpablo]

OK, just thought I'd see if anyone has any advice forthcoming.

I have a block of land, gifted to me by my parents. I paid a nominal $10K a while ago to assist as collateral for my first PPOR.

At the time I intended to build on it, but I've had an offer on it, at a time that we are considering starting a family and with the prospect that we might be needing to pay the mortgage on one income within the next year or so, SO I am considering selling it.

Problem is that as far as I can tell, I'm up for a serious amount of capital gains tax.

How do I work this out exactly on say a sale price of $300K?

And any suggestions on what course of action would legitimately minimise my capital gain?

Or am I hopelessly stuffed :-(!

 

[hrhpablo]

PS: I've never earned a cent of income off this block of land, I might add, despite having owned it for 4 years, but my friend assures me this matters not at all, when it comes to capital gains, etc.

 

[Pushka]

We too only had expenses for our block of land, but still had to pay the CGT.

 

[Joe D]

You haven't stated what the value of the land was at the time you acquired it as this will be the starting point for the CGT calculation.

 

[Mry]

When was it gifted to you?
If the property was gifted to you after 20/8/91, you can capitalise expenses such as rate and other holding costs.

Was it gifted to you under a will or a plain old gift from your parents?
If it came under a will, there are different ways to work out the cost base. If it was gifted to you, it will be the market value on acquisition.

Once you work out the gain and throw all that you can into that transaction to reduce it, you need to work out other ways to reduce it outside that transaction from your other income producing activities, such as salary sacrifice and/or investment borrowings for other assets.

 

[hrhpablo]

You haven't stated what the value of the land was at the time you acquired it as this will be the starting point for the CGT calculation.

Thanks for the response!

Wasn't aware that CGT started from value? The land value from my memory (I will check tonight) was $195K at the time I acquired it).

Are you certain that's the starting point?

 

[depreciator]

That would be the starting point if it was a 'gift', but if as you said you paid $10,000 for it, would that be the starting point? Much may depend on the nature of that transaction.
Scott

 

[Mry]

I was wondering about that $10,000 myself. Sounds like stamp duty and something else.

 

[hrhpablo]

When was it gifted to you?
If the property was gifted to you after 20/8/91, you can capitalise expenses such as rate and other holding costs.

Was it gifted to you under a will or a plain old gift from your parents?
If it came under a will, there are different ways to work out the cost base. If it was gifted to you, it will be the market value on acquisition.

Once you work out the gain and throw all that you can into that transaction to reduce it, you need to work out other ways to reduce it outside that transaction from your other income producing activities, such as salary sacrifice and/or investment borrowings for other assets.

It was a "transfer" - I'm fairly certain that was the legal term the solicitors used - for a nominal fee of $10K.

I just found a fax from my solicitos dated 18 February 2004 and attaching the valuation of the same date, putting it at $190K.

I've been offered $295K with some extended settlement terms today as a final offer, so appreciate any advice you can provide that will help me decide!

In particular I want help if possible to estimate the capital gains I will have to pay AND any suggestions that might help.

Thanks again MRY and Joe too, for the input! If I'm selling it now, I guess salary sacrifice and those sorts of options are thoughts I should have had earlier?!

 

[Mry]

You can't calculate the tax payable without working out what your marginal rate is, and it sounds like it won't be too much. Using some fancy estimates, if your costs were $190k + 10k + say 6k holding costs, the cost base would be around $206k. If the sale price is $295k, the profit would be 89k, which would be about 44.5k after the discount and the worst case scenario on that (46.5%) would be about $20,000. I wouldn't worry about GST if you were planning to live there.

I don't really have any suggestions since I don't know your circumstances. That's where an accountant comes in useful.

 

[redwing]

I always liked this post from Coastymike

There is technically no such thing as a capital gains tax. There are capital gains. These gains are added to your other income to form total taxable income. You then pay tax on your taxable income.

 

[GoAnna!]

Some thoughts that might assist.

If there was no agent involved in this sale then you are saving agents fees which leaves more in your pocket.

You can invest the money until the ATO makes claims on it which with further reduce the impact of CGT

CGT only applies to 50% of profit. Basically it is discounted income tax. It will depend what tax rate you on in for that portion of your income. If you can reduce your income in any way for this financial year tis could be helpful.

An accountant should be able to quickly crunch your numbers for you.

Good luck

 

[hrhpablo]

It was a "transfer" - I'm fairly certain that was the legal term the solicitors used - for a nominal fee of $10K...

I got the details from my solicitors today. The document was entitled "Transfer". The document has the parties involved and notes "the transferor acknowledges recepit of the consideration of $1,000.00 and as regards the land specified above transfers to the transferee an estate in fee simple".

So, can I use the land value as the base my capital gains will start from (the $190K assessed at transfer)?

Thanks again to all for your help/comments.

 

[alexlee]

So technically, for the 'buyer' the cost base of the land is the assessed value at transfer ($190k) while 'consideration' is $1k.

I would have thought that means your parents would have to pay tax on CG (using Coasty Mike's far more accurate terminology) when they gifted the place to you? i.e. even though consideration was $1k, THEIR sale price for tax purposes would be $190k? Did your parents do their tax return properly for this?
Alex

 

[WinstonWolfe]

You allude you own a PPR with a mortgage that might have to be serviced via one income, an income that has to feed 3 mouths as well....

There's 3 other avenues you might consider before disposing of land....

1.
whether you can borrow and build an IP on it, and rent out for a positive cash flow. think duplex or apartments.

2.
build a PPR on it, move into it for 6 mths, then sell it (due to changed circumstances)....that way you don't pay cgt. Though your current PPR's status would have to be changed to IP for 12 mths. Whether you do this depends on the relative cg's of each property.

However, each of the above would probably cost you $15k in progress pmt interest on construction.

3. Don't sell the land until the FY after you stop working. That way, you at least drop your marginal tax rate.