Depreciation, cgt, stamp duty and 50% discount

[Evil_hitman]

Hi all,
Just trying to get my head around depreciation for property.

It was told to me (by a non investor) that if you claim depreciation you need to pay it back on property sale. This seems counter intuitive to me.

What they were saying was I buy property at 100k, over 10 years I depreciate it by 10k, if I sell it for 200k I would calculate capital gain as 100k plus the 10k I depreciated, minus the stamp duty I originally paid for the property ( because I apparently can't claim it as an expense until sale) lets say 10k to make the figures easy. Once all these additions have been made I would then apply the 50% discount and get taxed on 50k in this case.

Assuming Stamp duty thing is correct, which I am unsure on, I would have thought the above would be 100k, apply 50 % discount, leaving 50k, claim 10k stamp duty, cgt amount would be 40k.
Depreciation is depreciation.

So in essence I want to know, does the claimed depreciation get added on to the cgt figure, is stamp duty only claimable on sale, if so, does the 50% discount apply before or after you've taken stamp duty in to account.

Cheers
Matthew

 

[Evil_hitman]

And sorry this is a simple fundamental question, I am just starting out after all

 

[alexlee]

Intuition doesn't always work when you're talking about tax law.

Yes, building depreciation is deducted from your cost base on sale, increasing your capital gains.

In your example:

Property price 100k
Stamp duty 5k
Depreciation 10k
Sale price 200k


Your cost base is 100 + 5 - 10 = 95

Your gross capital gains is 200 - 95 = 105

Applying the discount = 52.5k capital gains on your tax return.

The 50% discount is applied right at the end.

Also, if you're offsetting with, say, 40k in capital losses, the calc becomes -40 loss + 105k gain, gross 65k gain, 50% discount 32.5k capital gains on your tax return.

Isn't it a little premature to be considering capital gains tax at this stage?

 

[Evil_hitman]

I'm considering everything

It's just something that was mentioned to me in general conversation and it just didn't seem right. Just wanted to clarify for my own education.

Thanks for the quick response.

Cheers
Matthew

 

[WigansAFC]

I don't think its premature at all, I think keeping the end in mind is perfectly legitimate question.. (Im trying to get my head around the exact same stuff myself)

Good Question,

Thanks for the Answer too! So Simple when spelt out..

 

[alexlee]

Your call, but in my opinion, if you're just starting out, better to focus on how to buy (property selection, the buying process, etc), how to finance (what LVR, how to structure loans, offsets) and how to keep (knowing what's deductible, knowing how to calculate cashflow).

You can't learn everything there is to learn. If you try to, you'll drown in knowledge and end up not taking any action. Be selective, because you simply don't have the time to learn everything. Knowledge about the selling process won't be useful to you for years.

 

[orin]

What about conveyancing expenses?

Are these added to the capital base, or are they deductable in the year it is incurred?

 

[HotRod]

What about conveyancing expenses?

Are these added to the capital base, or are they deductable in the year it is incurred?

Deducted over five years I believe (or less if sold prior to five years).

 

[alexlee]

Deducted over five years I believe (or less if sold prior to five years).

No, conveyancing fees form part of the cost base:

http://www.ato.gov.au/individuals/PrintFriendly.aspx?ms=individuals&doc=/content/00131327.htm

 

[HotRod]

No, conveyancing fees form part of the cost base:

http://www.ato.gov.au/individuals/PrintFriendly.aspx?ms=individuals&doc=/content/00131327.htm

Argh.

Was thinking borrowing expenses.