CGT calculation

[ket]

Probably a silly question, but is there a "simple" way to calculate CGT on an investment property? I am considering selling my IP in WA (don't really want to but may have to) but would like some idea of what we may be up for in CGT. On current prices we should make about $95K (gross) on the original cost of $143K (in 3.5years).
Just a rough estimate would suffice for now. I have looked at the ATO site and found all the publications, but they must be joking if they think a layman can work it out!

 

[Mry]

Probably a silly question, but is there a "simple" way to calculate CGT on an investment property?

No.

Because it depends on your taxable income, which we don't have. As long as you get the discount, your worst case scenario is 24.25% but you also have to include other adjustments to the capital gain where applicable.

 

[geoffw]

ket

CGT is calculated by working out your capital gain. Simple so far.

So that's
.What you sold it for
.Less what you bought it for
.Less buying expenses
.Less selling expenses

So you've made about $95K. You may have had buying and selling costs of $15K (very roughly). That would leave a capital gain of $80K.

You've held it for a few years, so you get a discount. 50% of the capital gain is added to your income. So your income for the year in which it's sold is increased by $40K. The tax you pay then depends on your taxable income in that year. In the worst case, that's about $19K, which still leaves you with a good profit.

Buy/sell expenses will include stamp duty, agents' fees and the like- that's the finer details, talk to an accountant.

 

[Peter 14.7]

However I think if you have claimed depreciation costs the buying price value drops.

On the other side you add any captialised improvements that where not claimed as repairs to the purchase price.

Note I am not an expert here. Any comments?

Peter 147

 

[NedKelly]

However I think if you have claimed depreciation costs the buying price value drops.

On the other side you add any captialised improvements that where not claimed as repairs to the purchase price.

Note I am not an expert here. Any comments?

Peter 147

I have been trying to get my head around this too. All the property marketeers I speak to go on about how great the negative gearing is as you get all these tax credits from depreciation. Having spoken to my accountant he says you give it back when you sell. If you buy a house for $300,000 and get depreciation of say $50,000 over 10 years you reduce your effective buy price by $50,000 so that when you pay your CGT it is calculated from a base price of $250,000. What the hell use is that?

 

[Todd]

Its money in your pocket now, rather than later which can help fund another investment/living expense, and who cares about CGT if you dont plan on selling?

 

[Qlds007]

Cgt

Without trying to get too complex i will try and give you an simple calculation on CGT

Assume asset was purchased and CGT occured after 11.45am EST on 21/9/99

The non indexed gain is reduced by the relevant CGT Discount which is
1) 50 per cent for individual taxpayers.

CGT Averaging and indexation is not available.

If asset was owned (Ownership is indicated by the ate of the contract and not settlement) for less than 12 months then indexation does not apply. For GST events happening after 11.45am EST on 21/9/99 the 50 per cent discount option is not available nor is CGT averaging available.

Where pre year capital losses are avaialble these are applied against the capital gain before it is reduced by the CGT discount to determine the net capital gain for inclusion in assessable income.

 

[Whatever]

However I think if you have claimed depreciation costs the buying price value drops.

On the other side you add any captialised improvements that where not claimed as repairs to the purchase price.

Note I am not an expert here. Any comments?

Peter 147

...also I'm sure one of the expert accountants that posts here has highlighted that according to the strict letter of the CGT law, depreciation has to be deducted from the purchase cost base whether you claimed it along the way or not ?

regards,


Paul

 

[asdf]

Look at Depreciator's previous post. Only the 2.5% building component post 1987 or 1989 or something.

Every IP you buy now is a year you don't have to work so I'm quite happy to get 50% back from the ATO today, reduce my cost base and pay the CGT tax years later.

In the $50K example - deductions are worth $24,250 to me right now. ie. thats the tax I would otherwise have to pay. CGT on $50,000 is only $12,125 and the time value of money means that my $50K will be worth a lot less when I do sell. This is assuming that the govt doesn't reduce the tax rate to 30% as has been previously suggested. Theres too many bums out there we have to pay for so I doubt that would be happening anytime soon.

My accountant also suggests that I don't claim depreciations cos you just have to pay tax on it but how many has actually sat down with you to run the numbers to suit your particular circumstances? They are just too busy doing returns, company reports and BAS statements to sit back and provide good financial advice. Its not that they're incompetent, rather they have to trawl through mountainous volume of crap to just get their normal job done.

 

[WillG]

I have been trying to get my head around this too. All the property marketeers I speak to go on about how great the negative gearing is as you get all these tax credits from depreciation. Having spoken to my accountant he says you give it back when you sell. If you buy a house for $300,000 and get depreciation of say $50,000 over 10 years you reduce your effective buy price by $50,000 so that when you pay your CGT it is calculated from a base price of $250,000. What the hell use is that?

* $50k will be worth a lot less in 10 years.
* You don't have to claim deprecation.
* If you don't sell the property, you don't have to pay CGT or adjust for claimed depreciation !

If the initial tax benefits help you invest faster and grow your net worth then what is the problem ?
If you don't invest then you will definately get no capital gain.

Just my thoughts

 

[depreciator]

1. It's only depreciation claimed on the building that has an impact on CGT calculations. Depreciation claimed on the Assets (Fixtures and Fittings) doesn't come into it. And in many cases, there is more depreciation claimed on the Assets than the building.

2. Any property bought after May 13, 1997, when sold must have the eligible building depreciation deducted from the cost base whether it has been claimed or not. Yep, you read it right. In other words, you might as well claim it.

The latter point is one of those obscure things the ATO could pull out of the hat if they wanted to get picky with you. I'd say many accountants don't know about it. I was alerted to it by a pretty savvy accountant. The NTAA (a training group for accountants) were telling their members about this either last year or the year before.

Scott

 

[NedKelly]

Without trying to get too complex i will try and give you an simple calculation on CGT

Assume asset was purchased and CGT occured after 11.45am EST on 21/9/99

The non indexed gain is reduced by the relevant CGT Discount which is
1) 50 per cent for individual taxpayers.

CGT Averaging and indexation is not available.

If asset was owned (Ownership is indicated by the ate of the contract and not settlement) for less than 12 months then indexation does not apply. For GST events happening after 11.45am EST on 21/9/99 the 50 per cent discount option is not available nor is CGT averaging available.

Where pre year capital losses are avaialble these are applied against the capital gain before it is reduced by the CGT discount to determine the net capital gain for inclusion in assessable income.

Thanks for clearing that up! What's GST got to do with it, what is CGT averaging and indexation.

 

[Qlds007]

Comes of typing to fast the GST should read CGT.

Indexing and averaging relate to assets purchased pre or post 11.45am EST 21/9/99 when the taxpayer has a choice of how he calulates the GCT payable.

You need to refer to the Consumer Price Index to work out the inflationary factor for capital gains.

 

[NedKelly]

Comes of typing to fast the GST should read CGT.

Indexing and averaging relate to assets purchased pre or post 11.45am EST 21/9/99 when the taxpayer has a choice of how he calulates the GCT payable.

You need to refer to the Consumer Price Index to work out the inflationary factor for capital gains.

O.K. good I've got it now! Thanks.

 

[Peter 14.7]

1. It's only depreciation claimed on the building that has an impact on CGT calculations. Depreciation claimed on the Assets (Fixtures and Fittings) doesn't come into it. And in many cases, there is more depreciation claimed on the Assets than the building.

2. Any property bought after May 13, 1997, when sold must have the eligible building depreciation deducted from the cost base whether it has been claimed or not. Yep, you read it right. In other words, you might as well claim it.

The latter point is one of those obscure things the ATO could pull out of the hat if they wanted to get picky with you. I'd say many accountants don't know about it. I was alerted to it by a pretty savvy accountant. The NTAA (a training group for accountants) were telling their members about this either last year or the year before.

Scott

Thanks Scott

If you IP is very old, say 100 years old, does that still apply?


Btw another reason to use experts like Scott, Peter 147

 

[depreciator]

Age of the IP wouldn't matter. It is the purchase date that is relevant.
Of course, with a 100 year old unrenovated property, there will be no building depreciation available.
But with a 100 year old property renovated after Feb 1992, there will be building depreciation available.
In the latter instance, the ATO would have to know that the property in question has been renovated, and the reality is they won't.

 

[ket]

Cgt

Thanks everyone, all is now as clear as mud!
Basically I am looking at a method of working out a rough number which will show what we will be left with after RE agents, accountants, ATO, etc have taken their cut. I am hoping to have enough to get us out of the hole we are currently in but also to have enough to buy another IP that is +cashflow rather than negatively geared!
House is 70s vintage, we paid $142K all up (inc purchase costs) in 2002. Going by the INternet prices, it should pay between $240K and $270K. We have claimed depreciation each year, and although when purchased we were on the high tax bracket, we are now on low (very low)!
Ket

 

[depreciator]

On a 70s house, you would not have claimed any depreciation on the building itself (unless there were post 92 renos), so depreciation claimed will not affect your CGT calculations.
Scott

 

[ket]

CGT final calc?

OK, looks like the following is a good estimate of what I will be up for....
I have held the property for 3years, I own it as an individual,

Sale price approx $250K
less purchase price $142K = $108K
less sale costs (approx 2%?) $5K = $103K
x 50% CGT discount = $51,500

Only depreciation on it was for f&f; no building depreciation as it is too old.

So my taxable income this year will rise from around $30K to $81K!

Then there are the losses on the property (pro-rata) for the part of the year the property was still owned by me! Less some carried over capital losses from some poor share investments.

Does that sound right?

 

[geoffw]

Less purchase costs (those which have not been depreciated) as well.

But it sounds OK.