Do Property traders pay CGT on a sale?

From: .watto .


Hi All,

Would like someone to put me straight here. Just had some conflicting opinions given to me in regards to someone who is considered to be running a business ie property trading.

One opinion is No CGT payable????

Opinion two is CGT payable on 100% of gain minus capital costs etc????

Which is correct?

Cheers
Watto
 
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Sim

Administrator
Reply: 1
From: Sim' Hampel


Traders who are "running a business" of buying and then selling property for the purpose of profit can consider all costs (including purchase costs) as expenses and all gains (including capital gains) as income.

For a non-trader, purchase costs are not claimable, but are added to the cost base for CGT purposes. Also, capital gains can only be offset by capital losses, not by income losses (such as in a negatively geared situation).

For traders, purchase costs are treated as an expense and capital gains as income.

Accountants, please step in here to verify or clarify.

sim.gif
 
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Reply: 1.1
From: Robert Forward


Hehe, it's easy to see we have the same accountant Sim and he's telling both of us the same info.

I concur with what Sim has said, but take note we do use the same accountant.

Cheers
Robert

The Sydney "Freestylers" Group Leader.
 
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Reply: 1.2
From: Denise Macadam


Hello Sim/Robert

Interesting responses.
Forgive my ignorance here please!.
Who decides one is a "trader"
at what level is this determined - What is used to make this determination, is it $$$ value traded?
If one does not have a "regular job" and plays with property - e.g. reno's - sells holds, such as some of the partners on this forum. Are they then traders?
Reading Geoff Doidge's book at present - he mentions Land Tax bills - I never knew about this. At what level do they surprise you with this little gem?

Kind regards
Denise
 
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Reply: 1.2.1
From: Danny Dwyer


Re Land Tax (for Qld that is), refer to this website.

http://www.osr.qld.gov.au/tax_land.htm

Here's an example pasted below for a Natural Person (Australian Resident )

Total unimproved value $500,000
Less statutory deduction $200,000-
$300,000
Less residential deduction $140,000-
$160,000
Calculated Tax $1483.00
Less Rebate (15%) $222.45
Nett Tax $1260.55
 
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Reply: 2
From: Dale Gatherum-Goss


HI Watto!

No, traders do not pay CGT on the profits that they make. Whoever told you so must have been mistaken or led astray by someone else.

A trader is someone who buys and sells properties for a quick gain and not of the buy and hold variety. Their business is to buy properties and sell them for a profit and make their income from this activity.

Have fun

Dale
 
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Reply: 2.1
From: Alan Hill


Dale,

What 'qualifies' you as a Trader? Any guidelines?




:)
 
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Reply: 2.1.1
From: Robert Forward


A couple of things, but it does vary.

One is the speed of the trade, ie: If you buy and sell within a 3 month period you'd be trading.

How often you do it within your company.

And how your account helps you....

Cheers
Robert

The Sydney "Freestylers" Group Leader.
 
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Sim

Administrator
Reply: 2.1.1.1
From: Sim' Hampel


With this and other "are you running a business" type questions which arise in tax matters, the ATO tends to use the "duck" test.

If it walks like a duck and quacks like a duck, then it probably is most likely a duck.

In other words... if you act like you are running a trading business (ie. you actually have a registered business which you use to purchase your properties), and you do all the things a business trading business would normally do, then it is most likely you are running a trading business !

There are no "rules" to say you must buy and sell X properties in a certain amount of time, but you have to be able to demonstrate the intent to trade the property and not just being a long term holder and occasional seller in disguise.

sim.gif
 
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Reply: 2.1.1.1.1
From: Dale Gatherum-Goss


Hi

Look at that, I answered the question without even opening my mouth. Talented, huh?

Seriously, the answers are correct. There is no "formal" rule and the facts are judged on their merit, as has been explained.

Dale
 
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Reply: 2.1.1.1.1.1
From: Owen .


So would a one-off buy and sell within a 3 month period by a business be construed as a trade and have no CGT payable?

If so, then there are 3 cutoff point for CGT, 3 months no CGT, less than 12 month full CGT, more than 12 months 50% CGT.

Just thinking as I am a buy and hold guy but I have found a place that would be good for a quick reno and sale but I am not planning on more. Where would I stand if I did this?

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"
 
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W

WebBoard

Guest
Reply: 2.1.1.1.1.2
From: The Wife


Watch the real estate Institute start to twitch if they get wind your a 'trader'.

Better get licensed ! .
The times they are a changing, damn this hot market.

TW
~Before you criticize people, you should walk a mile in their shoes. That way, when you criticize them, you're a mile away. And you have their shoes~
 
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Reply: 2.1.1.1.1.2.1
From: Robert Forward


Yes, thats right. In good old QLD, if you buy or sell more then 6 properties in a year then you are automatically classed as a trader.

I think the above is correct, it may be a few more then 6 though. But I'm sure that someone can straighten that out.

Cheers
Robert

The Sydney "Freestylers" Group Leader.
 
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Reply: 2.1.1.1.1.2.1.1
From: Boyler Room


Owen,

My understanding is that regardless of the amount of "trades" if you're carrying on a business then it is considered stock and CGT is not payable. As Sim' said, "if you act like you are running a trading business (ie. you actually have a registered business which you use to purchase your properties), and you do all the things a business trading business would normally do, then it is most likely you are running a trading business !"

I'm not sure if there is a time span on it either. My understanding is that it is the intention to trade. The Govt. are big on intent. If it is your intention to trade the property for a profit in a business like manner then it is considered to be company stock and as a result any gains are regarded as income.

So if you can prove that the intention for that single property was to trade in a business like manner, then CGT is not payable.

I'm not an accountant, so seek professional advice.

Boyler Room
Co Ordinator for ADL Freestylers
 
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Reply: 2.1.1.1.1.2.1.1.1
From: Owen .


Thanks Boyler. I will check it out with my accountant as this would make a huge difference to the profits gained on a sale.



Owen

"Gambling promises the poor what property performs for the rich – something for nothing"
 
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Reply: 2.1.1.1.1.1.1
From: Dale Gatherum-Goss


>
>Just thinking as I am a buy
>and hold guy but I have found
>a place that would be good for
>a quick reno and sale but I am
>not planning on more. Where
>would I stand if I did this?
>
>Owen
>

Hi Owen!

No, based on what you are saying you would not be considered a trader because this is a one off situation and not something repeated.

Mind you, the tax on the profit or gain would work out the same regardless of CGT or trading, because the sale took place in such a short time frame.

Does this help?

Dale
 
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Reply: 2.1.1.1.1.2.1.1.1.1
From: Dale Gatherum-Goss


Hi Owen!

Please see my comments above. The tax will not change regardless of whether you are trading or under the CGT system.

Sorry, but, please just consider the tax as another expense of this deal just as you would the legals on the buy and sale, or the cost of renovations.

Good luck and have fun!

Dale
 
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Reply: 2.2
From: Michael G


Dale,

Would this include wrappers?

Ie buy a house and sell it in the same day (well give possessionary title).

I'd be interested to hear your views on how the profits would be taxed.

Wrap Example (1st monthly repayment):

Loan Payment (Prnpal)(Intrst)

Bought $75,000 $405.12 $80.12 $325.00

Wrapped $93,750 $819.09 $76.90 $742.19

Would the profits from both the principal payments and interest payments all be summed up as income and taxed accordingly.

or

Would it be the case of spreading the capital gain over the term of the loan. ie.

$93,750 - $75,000 = $18,750

$18,750 / 25 = $750 per year gain.

Michael G
 
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Reply: 2.1.1.1.1.2.1.1.1.1.1
From: Owen .


Thanks Dale, now I am really confused. Basically you are taxed on your gain regardless of whether you are trading or not. One is called CGT and the other is not. Is this correct? Are they different amounts or is is just the column it's put in at tax time?

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"
 
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Reply: 2.1.1.1.1.2.1.1.1.1.1.1
From: Robert Forward


Hi Owen

Traders will pay Company tax rates on their trades where buy and holders pay CGT.

So there is still a tax, just different wording on how the government gets it from you.

Cheers
Robert

The Sydney "Freestylers" Group Leader.
 
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