CGT help, not good at interpreting rules

[Julian.]

Hi

I am just after an idea about CGT and my situation.

I bought a house in WA in 2006 it was my PPOR (First Home) and then moved to Vic and rented it out since. I also bought another place in Vic in 2011.

I am now thinking of selling because I want the money to buy land in WA when I move back in 2017.


Is this the correct way of working out CGT

Purchase Price +
Stamp Duty +
LMI +
Renovations(that were done when living there)
= Base price

Selling price - agent fees
= Real Selling price


CGT = (Real Selling Price - Base price) * tax rate

-and do I then get a 50% discount for living in the place for 12 months or something

Not sure if I am completely wrong or not ... any help ? It would be greatly appreciated

 

[Paul@PFI]

Did you get a valuation in 2011 or whenever you rented it ?? Was the IP still eligible as MR exemption for a period ? Ie date you moved out until you acquired another MR is also likely exempt. Your facts arent clear.

This might change your calcs.

 

[Julian.]

thanks,

Rented the perth one out in December 2010, bought a new PPOR in january 2011, moved in to that in April 2011.

Didn't get a valuation done before leaving ...

 

[superAndrew]

I bought a house in WA in 2006 it was my PPOR (First Home) and then moved to Vic and rented it out since. I also bought another place in Vic in 2011.

For how long was it your PPOR and for long was it a IP? You will get a partial exemption since it was your PPOR for some time.

Purchase Price +
Stamp Duty +
LMI +
Renovations(that were done when living there)
= Base price

Selling price - agent fees
= Real Selling price

LMI is not included in the cost base. It should have been deducted over 5 years.

Selling Price - Cost Base = Capital Gain/Loss

Cost Base = Purchase Price + Capital Costs (legal fees, stamp duty and agents commission) - Capital Works Deductions (depreciation claimed)

Andrew

 

[Julian.]

Lived in it as a PPOR for 4.5 years and has been an IP for 3.5 years currently.

so no LMI in cost base ....
and renovations that were done are counted in depreciation so can't add it in to the cost base either ??

 

[superAndrew]

Lived in it as a PPOR for 4.5 years and has been an IP for 3.5 years currently.

so no LMI in cost base ....
and renovations that were done are counted in depreciation so can't add it in to the cost base either ??

Ok, so for year 0 - 4.5, no CGT since it was your PPOR. In year 4.5 it became an IP. You need to estimate the market value at that time. This will be the purchase price.

The 50% discount will apply since you held it for more than 1 year.

Have a look here for how to calculate CGT:
http://www.bmtqs.com.au/mav-33-CGT

And here regarding the exemption. There is an example at the end that is the same as your situation.
https://www.ato.gov.au/General/Prop...n-residence-exemption-from-capital-gains-tax/

Andrew

 

[Paul@PFI]

Ok, so for year 0 - 4.5, no CGT since it was your PPOR. In year 4.5 it became an IP. You need to estimate the market value at that time. This will be the purchase price.

The correct answer is that a valuation should be obtained from a qualified valuer based on the date when the property ceased to be your main residence if that was date it first earned income. they likely will use RP data etc to proide that opinion. The higher he value the better (not that you can choose but you can explain its purpose) You cannot estimate it. You cannot use a real estate agent opinion either.

If you dont have a valuation you must use the apportionment basis based on no of days as PPOR divided by total days ownership to give an exempt % which is applied to the gross capital gain. The net gain is then reduced by the 50% discount.

It sometimes works that the valuation is a worse outcome than the apportionment method. (eg value was low when you rented it) By not using the valuation, as if you never held one, its effectively an election you can make at the time. The tax act doesnt mention that. So key issue is having the valuation.

If the LMI wasnt claimed as deductible it would add to the cost base. Or you could consider amending PY returns (2 year limit usually). Important to get the cost base right since it impacts on CGT. Include purchase price, legals, duty, selling costs, agent, legals, improvemnets and adjust for any cap allowances and depreciables etc.

Be careful of unqualified advice. Devil is always in the detail.

 

[GaryT]

The correct answer is that a valuation should be obtained from a qualified valuer based on the date when the property ceased to be your main residence if that was date it first earned income. they likely will use RP data etc to proide that opinion. The higher he value the better (not that you can choose but you can explain its purpose) You cannot estimate it. You cannot use a real estate agent opinion either

As far as I am aware there is nothing in the act that requires a qualified valuer to provide a valuation. You could get a real estate agent to provide a valuation using 3 recent property sales.

 

[coastymike]

Tax Act doesnt require a licensed valuer. In fact the ATO website says when transferring between family members.

How do you obtain the market value?

You can choose to:

- obtain a valuation from a professional valuer, or
- work out the market value yourself using reasonably objective and supportable data, such as the price paid for very similar property that was sold at the same time in the same location.

https://www.ato.gov.au/General/Capi...s/?page=2#How_do_you_obtain_the_market_value_

 

[Paul@PFI]

Every client estimate I have seen is objectively in their favour. Some have this way of making facts fit the case and that view increases as tax rises. . I would go with gary + I would at least rely on a third party if there is a tax impact / saving. It like arguing over putting coins in a parking meter - Murphys law says if you dont put coins in you get booked.

 

[Julian.]

thanks guys, slowly becoming a bit clearer...

so far I have gathered

- I can include LMI in my base as I never claimed on tax and this will be easier than amending previous tax returns.

- and I need to get a purchase price based on either :
- apportioned the original value to sale price by days owned etc
- valuers estimation
- or similar sales at the time it became IP
I guess whichever works out better for me I suppose

Paul,
you mentioned I can include improvements in the cost base, is this mean any renovations i carried out whilst it was a PPOR are included, even if they are accounted for in depreciation ??

thanks again

 

[GaryT]

you mentioned I can include improvements in the cost base, is this mean any renovations i carried out whilst it was a PPOR are included, even if they are accounted for in depreciation ??

The cost base becomes the market value when it changes from a PPOR to an IP. So obviously the market value would take into account any improvements done before that time. Any depreciation before it becomes an IP is irrelevant. There is no option not to use the market value rule.