Deferred Capital Gains

An interesting topic,

In the U.S. they have what is called the "1031 Tax deferred Exchange ". As far as I can see this lets a property investor sell a property and re-invest that money into a new property. (e.g. sell three houses to buy a full unit or apartment building etc)

I know Kiyosaki raves about this. My question is do we have such a benefit here in Australia or is this just a great reason to become a US citizen :)

Physically you would be no better off by reinvesting the same money into another property, just shifting your money. To me this is not at all cashing out. So my basic question is

IF NOT, WHY NOT.

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If everyone were young and rich we'd be in the wrong game ;)
 
Hi,

To my knowledge no such thing exists in Australia for individuals. There is a CGT concession for businesses that dispose of one asset to buy another. So this might be another benefit of buying IP's as a business?

Looking into things further it seems that IP's bought as a business would still not qualify for the CGT concession;

"The following CGT assets cannot be active assets (even if they are used, or held ready for use, in the course of carrying on a business)

3. assets whose main use is to derive interest, an annuity, rent, royalties or foreign exchange gains "

Cheers
Chris
 
Chris

That's very interesting.

But what if your company traded in properties, and did not hold them for income ie rental purposes?

However, most 'capital assets' for business purposes are amortized ie their capital value is 'consumed' during the course of business, thus their sale price would most likely be at or about their written down tax value. Purchase price, less allowable tax depreciation x years of use.

With property bought to be improved and then sold, whether it be unimproved vacant land or houses to renovate, depreciation benefits would not be claimed and the asset would appreciate (hopefully) over and above the value of the improvements.

Business is business, and profits are taxed in the year they occur. Losses, however, remain an 'asset' for years and can be carried through numerous taxation years.


Regarding the American system: A principal place of residence is exempt from tax on sale IF the owner up-grades to a more expensive property. All improvements including maintenance eg painting are allowable deductions from the sale margin of the property.

However, as I understand it, there are no tax incentives to buy property for investment purposes, ie you cannot write off the interest on loans, rates, insurance, property management fees, repairs & maintenance etc. In other words, no negative gearing.

In Australia the home is sacrosant. If you bought a house & land in Doncaster, Melbourne, in 1972 for $15,000, and sold it now for $550,000, then not only have you effectively lived 'rent free' for thirty years, you get to keep all the money at sale time.

In my humble opinion, this is a pretty good reason to take out Australian Citizenship. The Americans, on sale of the final property or selling to scale down to a smaller property, then have to pay tax on the sale, perhaps at a time in life when they can least afford it.

I seem to remember that Kiyosaki actually critized this system, as it encouraged families to continually upgrade, increasing their debt, and thus limiting their opportunity to buy investment properties which would have actually contributed to the family wealth.


cheers

Kristine
 
Hi,

If your business trades in prop then the CGT concession becomes irrelevant because the properties are classed as stock and therefore no CGT is applicable. Kirstine is right. It then simply becomes a matter of being taxed on the profits as income for that year or carrying over the losses.

Cheers
Chris
 
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