Capital Gains Tax

I am somewhat confused about calculations for capital gains tax. I understand the principles of Sale Price minus Cost of Purchase and assoc costs (legal, agent fees etc).

What I am having difficulty with is understanding the effect with holding cost (eg rates, insurance, interest, maintenance). I understand that I have been claiming these as tax deductions throughout the time I have been owning the property. However, I do not get a full refund of these costs and ultimately I have ended up out of pocket each year by $1000. For example

Taxable Income $40,000
Tax on this for 2011 would be $5550 however I had
Property losses of $1500 so my income was reduced to $38500 for income tax purposes.
Tax on this for 2011 was $5100.
Therefore I have received $450 back from the ATO for my out of pocket expenses on the property. I therefore had to pay $1050 out of my own pocket to maintain the property for the year.

Does this loss each year get factored in to the capital gains calculation or am I just not getting a concept correctly here. Thanks
 
The system isn't designed for you to 'get everything back'. In the same way, when you earn $1, you don't pay all of it in tax either.

Tax deductions you claim in your annual tax return (assuming you've claimed them correctly) are done and dusted, and are not to be included in the capital gains calc.

One exception is building depreciation, which is an income deduction but deducted from your cost base (increasing your capital gains). Before you start complaining about it, it means you got a deduction at your marginal rate of tax but pay it back at half your marginal rate of tax (if you hold the asset for >12 months).
 
I am somewhat confused about calculations for capital gains tax. I understand the principles of Sale Price minus Cost of Purchase and assoc costs (legal, agent fees etc).

What I am having difficulty with is understanding the effect with holding cost (eg rates, insurance, interest, maintenance). I understand that I have been claiming these as tax deductions throughout the time I have been owning the property. However, I do not get a full refund of these costs and ultimately I have ended up out of pocket each year by $1000. For example

Taxable Income $40,000
Tax on this for 2011 would be $5550 however I had
Property losses of $1500 so my income was reduced to $38500 for income tax purposes.
Tax on this for 2011 was $5100.
Therefore I have received $450 back from the ATO for my out of pocket expenses on the property. I therefore had to pay $1050 out of my own pocket to maintain the property for the year.

Does this loss each year get factored in to the capital gains calculation or am I just not getting a concept correctly here. Thanks

You are not getting the concept here. No double claiming - if you have claimed interest as you go along the way you cannot claim again against capital gains tax.
 
Thanks all. Just trying to get it all reconciled in my head. In "real terms" we didn't really make any money on the property. it started off as almost neutrally geared and then in 3 years the insurance premiums went from $500 per year to $2000 per year. This wasn't because of claims we made.... just an industry overhaul. this made the property negatively geared. We just needed to sell it and this took 2 years ! So ultimately when I factor in everthing we have spent and take off what the ATO gave us back each year we made $3500. But for capital gains purposes the capital gain will be around $13000 as we look only at capital costs assoc with the property. I believe I need to treat depreciating items like airconditioner, water tank etc as separate calculations for CGT purposes?
 
Thanks all. Just trying to get it all reconciled in my head. In "real terms" we didn't really make any money on the property.

What you think you made, or didn't make, or what you think you should have made, doesn't matter. All that matters is the tax law.
 
What you think you made, or didn't make, or what you think you should have made, doesn't matter. All that matters is the tax law.

absolutely. which is why I want to get it right and obviously understand it for future investments. Calculating my exact expenditure over the years and what I have received back in terms of deductions has been a good exercise in understanding the effect of making the right choice about when to sell a property. In this particular incidence we didn't really have a choice about selling, but that's a whole other story.
Thanks
 
Argie's issue

You raise a valid point that many taxpayers do overlook. I dont suspect it applies to you.

Taxpayers who make a loss on rental props who never use that loss can use it to reduce a capital gain. Its common with non-residents. I have seen many tax practitionesr fall for the belief that revenue losses cant offset capital gains. They can. Let me give example.

Ted has owned a prop for 10 years. Used to be his house. Each year he included rent and deductions and makes a net loss each year. Carried fwd losses are now $38,000. That loss can be reversed out and can reduce the capital gain. Expenses which did not receive a deduction can increase cost base.

Also if you claimed capital allowances you may need to adjust the cost base (down I'm afraid) by the value of all capital allowance deductions you have claimed. That can sting ! Its often overlooked in DIY CGT calcs.

Paul
 
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The other thing overlooked in diy cgt calcs is the apportionment of the sales proceeds between depreciating assets and the land/buildings and any required balancing charge adjustment.
 
The other thing overlooked in diy cgt calcs is the apportionment of the sales proceeds between depreciating assets and the land/buildings and any required balancing charge adjustment.

Yes. I was asking about that earlier. Thinking that I should separate the Hot Water Service as a separate item. Would I be correct in thinking I reduce the sale price of the property by the Closing written down value of the Hot Water Service?
My other question was in regard to any holding costs/expenses that I incurred in previous years and have not included as a tax deduction. Reviewing my files there are a few costs that I did not claim in the year they occurred. Can I legitimately factor them in now to reduce base cost?
 
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