Property sale costs
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Legals to prepare a contract of sale and attend settlement
Mortgage discharge fees and early payout fees (if applicable)
Legals to prepare a contract of sale and attend settlement
Mortgage discharge fees and early payout fees (if applicable)
net sale price =
sale price - (comm + legals + capex + bank costs)
net cost base =
contract price
+ capital in-costs (transfer stamp duty, title transfer, legals for purchase, surveyor, P&B, BA fee, etc)
- cumulative div 43 building allowance (depreciation)
pre tax cg =
net sale price - net cost bas
p.s. be sure to account for depreciation on existing structure and new cap expenditure.
sale price - (comm + legals + capex + bank costs)
net cost base =
contract price
+ capital in-costs (transfer stamp duty, title transfer, legals for purchase, surveyor, P&B, BA fee, etc)
- cumulative div 43 building allowance (depreciation)
pre tax cg =
net sale price - net cost bas
p.s. be sure to account for depreciation on existing structure and new cap expenditure.
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WW, you positive on the building allowance?
edit:
Building allowances
A building allowance of 2.5% (or 4% in certain cases) of the original construction cost of a building is allowed as a deduction against income each year (until the original cost is exhausted). The amounts claimed as a deduction are subtracted from the cost base and reduced cost base of the building. (Note the allowance is calculated on the original construction cost, not a price later paid, and note also a building is a separate CGT asset from the land it stands on, and only the building cost base is affected.)
Building allowance works as a kind of depreciation, representing progressive decline over the lifetime of a building. But unlike the way depreciation has a final balancing adjustment against income, the building allowance instead gets that as capital gain (or loss) through it lowering the cost base.
As an example, if it's assuming a building is worth nothing at the end of the 40 years implied by the 2.5% a year allowance, the owner has had deductions progressively over those years instead of only realizing the whole lot in one big capital loss at the end.
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Thx. Well spotted. Cum Div 43 should be subtracted, not added, from contract price. I have it as a subtraction in my xls. Mistakenly wrote it the wrong way.
Adding Div 43 deds to contract price would reduce capital gain, which would be a double dip on tax deds.
Capital gains tax if not PPOR PLUS...
As a general rule of thumb, selling costs amount to 4% of the sale price, although this can vary from property to property and state to state.
Selling Costs include;
Solicitor’s or Conveyancer’s Fees
Real Estate Agents Commission
Advertising and Auction Costs (if applied)
Early Mortgage Discharge Fee (may apply)
Break Out Costs from Fixed Interest (may apply)
As a general rule of thumb, selling costs amount to 4% of the sale price, although this can vary from property to property and state to state.
Selling Costs include;
Solicitor’s or Conveyancer’s Fees
Real Estate Agents Commission
Advertising and Auction Costs (if applied)
Early Mortgage Discharge Fee (may apply)
Break Out Costs from Fixed Interest (may apply)
Thanks for your reply Winston
What does P & B mean?
BA - building assessor's fee?
What does P & B mean?
BA - building assessor's fee?
What does P & B mean?
Pest and Building Inspection......suppose some say it the other way round.
BA - building assessor's fee?
Buyer's Agent
Mal, it's been several years since I had depreciation explained to me, so would suggest for the more technical stuff, you confirm it with a professional.
The way I understand it is there's three types of depreciation
1. Division 40 is plant and fittings (not structural building stuff)
2. Division 43 is existing building depreciation (2.5% pa over 40 years).
3. New capital expenditure such as renovations and additions.
It is mandatory for Div 43 to be subtracted from your cost base when selling. But you can claim it as a deduction each year. It works like this: you claim a 43 deduction each FY which reduces your tax burden. Claimed depreciation is supposed to be spent at some stage to keep the building from running down. If you don't spend the money, then you have to give the claimed depreciation back to the ATO. You do this by subtracting div 43 from your cost base, which increases your capital gain and cgt.
example:
Purchase price 200k with build cost of 100k
depreciation over 5 years = 5 * 2.5% * 100k = 12.5k div 43 deductions over 5 years.
Sell at end of 5 years for 240k
cost base = 200k.
subtract 12.5k depreciation = cost base of 187.5k.
sale price less cost base = 240-187.5 = 52.5k which CG is payable on.
The additional cg repays the annual deductions allowed that did not get spent as new capital expenditure.
Basically, you are not supposed to profit from depreciation deductions.
Depreciation savings should really be quarantined in a separate account to be spent later to keep the building in fair condition.
If you don't spend the depreciation deds, then you give it back to the ATO.
HTH.
Guys, I have come across this thead late. My understanding is that the Section 43 is an allowance, not depreciation, and therefor from my experience, is not clawed back on sale. You adjust you cost base with purchases, however I was not aware you "repaid the allowance"
You do repay with Section 40 Depreciation, however as contracts do not usually breakup the sale price, I have never seen that clawed back either.
Best get accountants comments here, we are giving opinions that could be off the mark.
You do repay with Section 40 Depreciation, however as contracts do not usually breakup the sale price, I have never seen that clawed back either.
Best get accountants comments here, we are giving opinions that could be off the mark.
Julia Hartman is a property investment specialist accountant who used to post here regularly. Here's her response to Div 40 and 43, and relationship to cost base.
Answer by julia on Fri 13, Feb 2009 09:04pm: Yes, it is only div 43 depreciation that you have to reduce the cost base
by. The assets depreciated under div 40 are not subject to CGT and
considered separate from the property. The example you have quoted is
correct it is just the interpretation of what it means that is wrong. What
it is saying is if you do not know the market value or the portion of the
selling price that is attributed to the div 40 assets then you can assume
that their value is the same as their written down value in your
depreciation schedule if you have used the ATO rates. So if you had
$30,000 initially and have claimed $15,000 in depreciation you are deemed
to have sold them for the balance left which is $15,000. This means there
is no profit on their sale. The $15,000 claimed does not reduce your cost
base but your cost base should not have included the $30,000 in the first
place! So from where you seem to be coming from ie taking into the cost
base the full price you paid for the property you need to reduce this by
the $30,000 but then reduce the funds you receive for the sale by $15,000
representing the value of the div 40 assets. The actual dollar effect is
the same as adding back the $15,000 claimed in depreciation.
Hi,
If I have spent 5-6 lakes on Home Improvements from the time I have brought this property and during the time of sale when I am calculating the Capital Gain, how do I account or show the expenses on Home improvement and also the cost incurred for advertisement, Chartered accountant fee etc? Please Advice
If I have spent 5-6 lakes on Home Improvements from the time I have brought this property and during the time of sale when I am calculating the Capital Gain, how do I account or show the expenses on Home improvement and also the cost incurred for advertisement, Chartered accountant fee etc? Please Advice
