CGT question

[NOI53Y]

Hello,

I currently have an IP which is valued at $330,000. I owe $270,000 on it and my original purchase price some 4 years ago was $230,000. It became an IP in March this year.

If I was to sell it next year (which i have no intention of doing so. This is just for curiosity sake) for lets say $340,000 would I pay CGT on the $110,000 over the original purchase price or the $10,000 that it went up in value from when it became an IP.

Cheers,

Glenn.

 

[wobbycarly]

IF you got a suitable valuation done when you moved, you only need to pay the CGT on the gain since March. Even if you didn't get a val done then, you might be able to get a valuation "as at" that date.

 

[Jamie M]

If I was to sell it next year (which i have no intention of doing so. This is just for curiosity sake) for lets say $340,000 would I pay CGT on the $110,000 over the original purchase price or the $10,000 that it went up in value from when it became an IP.

You would pay the CGT on the $10k. It's important to get a valuation carried out on the property when converting it into an investment. That way, there is unlikely to be any contention from the ATO when you sell the property because you can show how much it was worth when it became an IP.

To save some money, you can get the valuation from a real estate agent (get it in writing). It helps to get a high valuation to minimise future CGT

Jamie

 

[JamesGG]

my original purchase price some 4 years ago was $230,000. It became an IP in March this year.

Just to clarify then; you lived in it for the first three years or so?

With that in mind, it might be worth searching the forum, or asking your accountant, about the six-year rule. You may have a little flexibility there.

 

[NOI53Y]

Ok cool. The property got valued when we made it an IP. If I ask my bank is it likely that they will give me a copy of the valuation so that way I have it in writing.

JamesGG we did live in it for the first 4 years up until March this year. I'll do a search on this 6 years rule you mentioned. You have me intrigued now

 

[wobbycarly]

The 6-year rule is that if you haven't purchased another PPOR, then you can continue to claim this place as your PPOR for 6 years from the time you move out.

Now why didn't I think of that?!

 

[Mry]

I think I link this article I wrote almost every 2 months now. It covers common issues for people when they start renting out their old PPOR.

 

[NOI53Y]

Thanks for the link. I'll take have a read today.

 

[letitbe]

How about CGT on the land?

Hi all
First timer investor here. Bought a land in Vic with an intend to build.

Is 50% discount CGT only for the first year? [thinking to grab a quick profit here, bought it as common titles with my partner 80/20]

Does re-valuation apply to the land as well?

Are the CGT rules the same for all states?

Thanks
anthony

 

[wobbycarly]

Hi all
First timer investor here. Bought a land in Vic with an intend to build.

Is 50% discount CGT only for the first year? [thinking to grab a quick profit here, bought it as common titles with my partner 80/20]

The 50% CGT discount applies to any asset held for at least 12 months.

Does re-valuation apply to the land as well?

Sorry, don't understand the question. Do you mean if you change the purpose of the use (from PPOR to IP?) There's no house, so there's not really a change in use is there?

Are the CGT rules the same for all states?

Thanks
anthony

Yes, CGT is a federal tax, so it applies in all states.

 

[Mry]

Hi all
First timer investor here. Bought a land in Vic with an intend to build.

Is 50% discount CGT only for the first year? [thinking to grab a quick profit here, bought it as common titles with my partner 80/20]

CGT does not apply when you intend to sell at a profit, it is treated as income according to ordinary concepts. See here for information on the tax consequences of people who buy or develop land.

Does re-valuation apply to the land as well?

No house.......

Are the CGT rules the same for all states?

Income tax is a Commonwealth tax, it is not state based thus the rules apply all over Australia equally.

 

[letitbe]

Thank wobbycarly and Mry for reply.

The 50% CGT discount applies to any asset held for at least 12 months

When does the date start? the date of settlement or the date of contract signed?

Also I read somewhere "for up to 6 years. This will allow you to sell it CGT free", does it mean No need to pay Tax on the profit?

CGT does not apply when you intend to sell at a profit, it is treated as income according to ordinary concepts. See here for information on the tax consequences of people who buy or develop land.

Alright. That's even better then. To confirm, so the profit from the sell is Not counted as CGT and 50% CGT disc is Not applied, is my assumption correct?

But how ATO knows if we are a "Mere Realisation" or "Profit Making Venture" types?

Thks

 

[Jeith]

Thank wobbycarly and Mry for reply.

Also I read somewhere "for up to 6 years. This will allow you to sell it CGT free", does it mean No need to pay Tax on the profit?


Alright. That's even better then. To confirm, so the profit from the sell is Not counted as CGT and 50% CGT disc is Not applied, is my assumption correct?

Thks

6 year rule only applies to PPOR - not applicable for a block of land

Income according to ordinary concepts means it is added onto your assessable income - so the profit from the sale would be taxed at your marginal tax rate. CGT & 50% discount would have meant only half of the profit was taxable.

 

[wobbycarly]

When does the date start? the date of settlement or the date of contract signed?

No idea, sorry! I know when I sold a place, the accountant used the sale date as date of contract.

 

[Ausprop]

if it is on your revenue account then it is the date of settlement. this worked in my favour once...settled on about the 1st July!

if it is capital it is the date of the contract.

if the former puts the profit into a loss year then sometimes you are better to be an enterpriser than a passive asset holder

 

[letitbe]

if it is on your revenue account then it is the date of settlement. this worked in my favour once...settled on about the 1st July!

if it is capital it is the date of the contract.

if the former puts the profit into a loss year then sometimes you are better to be an enterpriser than a passive asset holder

Well well... what is revenue, what is capital, more info please.

I'm a starter. I have a plan to build a house on the land (if I'm allowed to borrow more) or sell it after held it for a year. That's why the date is crucial for me as I don't want to pay too much interest.

How is CGT calculated? bought price minus sold price? or bought price minus sold price minus agent fee?

Are stamp duty, interest on the mortgage and selling agent fee tax deductible? Can I claim them as expenses on my tax income with possibility no pay Tax at all?

Thanks again

 

[wobbycarly]

Well well... what is revenue, what is capital, more info please.

http://www.investopedia.com/terms/c/capital.asp
http://www.investopedia.com/terms/r/revenue.asp

I'm a starter. I have a plan to build a house on the land (if I'm allowed to borrow more) or sell it after held it for a year. That's why the date is crucial for me as I don't want to pay too much interest.

How is CGT calculated? bought price minus sold price? or bought price minus sold price minus agent fee?

The capital gain to be taxed is calculated as [Sell price] - [Cost base], the result of which is added to your taxable income. Note that cost base isn't "cost". It may vary depending on your circumstances, but cost base is usually something like [cost] + [fees] + [other stuff]. Other stuff could include your interest holding costs, etc.

http://www.ato.gov.au/individuals/content.asp?doc=/content/36542.htm

But as Ausprop alluded to, your individual circumstances may affect the calculation - best to talk to a real accountant.

Are stamp duty, interest on the mortgage and selling agent fee tax deductible? Can I claim them as expenses on my tax income with possibility no pay Tax at all?

Thanks again

You can claim the interest and other "running" costs against your income tax, ONLY if you are also generating income from your investment (which you won't be as you cannot rent out a place that's not built), but these costs will generally be added to your cost base (refer above)