CGT in AUS 1031

[magic]

I live in Sydney, Australia. Someone told me that when you sell your investment property, and then within six months and within the same financial year, you buy another investment property (of higher price ???) then you would not need to pay for capital gains tax, since you would be reinvesting your capital.

This would mean that even though you get a 50% discount if you hold it for more than one year. Doing it in the way above, you wouldnt need to pay for any CGT at all. (even if you hold it for less than a year)

Is this true?
What is it called, I couldnt find it on the ATO website.
The person who told me is currently doing this. But my accountant hasnt heard of it before.

I think it is called 1031 exchange in USA, but does it exist here?

 

[duncan_m]

I think it is called 1031 exchange in USA, but does it exist here?

No such equivalent operates in Australia.

 

[quiggles]

More specifically such a provision does exist in the tax code. If you have an active asset and replace it, you can roll over your CGT.

Of course, as we are just landlords who never exert any effort in our non-businesses, the ATO the Government rightly regard our major money producing asset as a passive asset and not available for this treatment. It's in the legisaltion.

Magic, if I was the friend you mention, I'd be saving up quick smart in order to go to the ATO and confess all. I think what he's done is to simply not declare his capital gain (beccause 'he doesn't have to') and if he gets caught, it'll be penalties and interest. At least (at present) he can argue that it was an honest mistake.

 

[chrispy]

No rollover

We have discussed this a few times but the answer always remains the same there is no rollover of CGT for property

Quiggles is correct our investments are passive - although it doesn't feel like it when we are pulling down walls, painting ceilings and mowing all that grass!!

I would really like it if we could use the small business claim but then we get to use the threshold so can in effect time the buying and selling of assets, buying on a high income and sell in retirement when we presumably are on a lower income

Think your friend needs to urgently do a tax re-assessment

Chris

 

[Monopoly]

Magic, if I was the friend you mention, I'd be saving up quick smart in order to go to the ATO and confess all. I think what he's done is to simply not declare his capital gain (beccause 'he doesn't have to') and if he gets caught, it'll be penalties and interest. At least (at present) he can argue that it was an honest mistake.

Magic,

Just out of curiousity, you didn't ask this same question in PI.com some months back did you??? I remember the exact same (detail for detail) question having been asked by someone there. Anyway, my response was pretty much the same as that given by others above. Basically, that is to say this option is not available to us in Australia, as it is to those in the US.

Quiggles,

Just to add to your comment here; an honest mistake will not necessarily cut the mustard with the ATO. Councils are required to advise the ATO when there is a change in ownership of a property, hence upon being informed of same, should the ATO take it upon themselves to conduct an audit of an individual who has incurred a CGT expense and it is found that this person has not declared the gain in their return, I daresay the ignorance will not be dismissed lightly. The individual will be charged heavily with back interest and other penalities, and the greater the number of years since the transaction took place, the harsher the punishment, including imprisonment so I believe. IMO it just isn't worth it!!!

Cheers,

Jo