Property tax

Discussion in 'Accounting and Tax' started by gelsusu, 16th Jun, 2015.

  1. gelsusu

    gelsusu Member

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    Hi all,

    I am just after some advice in relation to the timing of a CGT event. The situation is as follows;

    I currently have a property which is going to be rezoned and have been offered an option by a property developer to purchase the property. I would just like to know does the CGT event occur as of when the option is granted (event D1) or when i decide to accept the option or sell the property and therefore apply event A1?

    Thanks in advance
     
  2. Terry_w

    Terry_w Member

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    2 CGT events - option and settlement are different transactions.

    D2 on granting the option. No 50% CGT discount on this - just a capital gain (less any expenses)

    And when the option is exercised. If this happens then the CGT on the granting is disregarded - so you may have to amend your prior tax return. Cost base will be modified too as the option fee is included (and any expenses

    Check this with your tax lawyer.
     
  3. gelsusu

    gelsusu Member

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    Terry thanks for your reply.

    These CGT events (D2) only apply if i am granting the option but in this case it is the developer giving me the option. But from what i understand if the option is exercised the timing of the event will then become this and not when the option was initially issued (assuming it is exercised).
     
  4. Paul@PFI

    Paul@PFI Tax, SMSF & Planning

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    Is an amount being paid by the developer ?

    Thats likely CGT event 1. Then if you exercise the option is a further CGT event.
     
  5. Terry_w

    Terry_w Member

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    You said above you own the property. So is this a put option? i.e. you will be required to sell if the developer wants to buy
     
  6. gelsusu

    gelsusu Member

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    Paul - The option is over a 2 year period but i am under the impression that it is taxed once the option is signed but payable once the proceeds are received?

    Terry - Yes that's right. It is basically the developer issuing the call option rather than me issuing the put option if that makes sense. So from the CGT event D2 i am not the one actually granting the option. That is what I am trying to clarify if it makes sense?
     
  7. Terry_w

    Terry_w Member

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    Same principles apply I think. You have granted an option over your property.
     
  8. gelsusu

    gelsusu Member

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    Sorry in advance about the confusion this may cause but tax is always fun :cool:

    1. We are currently living in our main residence which is also our current PPOR
    2. We purchased an investment property and the start of the year and have just rented it out, but as advised above this is now likely to be rezoned.
    3. Developers are interested in purchasing the property on an option

    Currently I am trying to take action to minimise the CGT payable once the property is sold (looking about 1-1.5 mill profit).

    We are going to sell our current PPOR and move into the property so that it is no longer an investment property. Based on my research we will then be required to pay CGT on the proportion on "rented" vs "lived in". Are there any other suggestions or recommendations which could be applied in this situation?

    Furthermore, how does the option contribute to this? i.e. taxable at option date but payable once settlement occurs (i.e. option exercised). Does this also mean we can not claim 50% CGT discount under event D2 but then once the option is exercised we can amend this and claim the discount when the option is exercised/settlement occurs?

    Thanks in advance
     
  9. tobe

    tobe Mortgage Broker

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    I think you need to get some specific advice. Only moving into the property after you have received offers to purchase it smells bad to me, and might be something the tax office is interested in.....
     
  10. Paul@PFI

    Paul@PFI Tax, SMSF & Planning

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    Moving in will create a very small period of time when the main residence exemption is satisfied. May be worthwhile considering the 6 month overlap allowed if the former home is sold so you can move out asap.

    The total capital gain must be apportioned on a time basis so that the exempt % reduces the total gain. If you were resident for two weeks it may make little difference if owned for 10 years.

    Personal tax advice seems required. Its also possible you have engaged in an enterprise OR had an intent to make profit. Its possible that if the reason for acquisition was based on possible future value improvement and highly likely sale that CGT will never apply. Ordinary income rules apply when the intention is to profit. These laws well predate CGT laws. Your duration between acquisition and sale seems short and a high risk. The occupancy of the home may be critical in avoiding GST issues if that is the case too.

    This seems like a attempt to find a exemption rather than the case of an exempt asset being sold. That's high risk.
     
  11. gelsusu

    gelsusu Member

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    Thanks for your reply.

    The plan was to purchase the property and add on a granny flat and keep as an investment however during our renovations the neighbours informed us of "potential" rezoning however the real estate or no body informed us before the sale. It has still not been rezoned and is only speculation but it will not be possible to maintain the property with developments going on around it.

    Thanks for your help and i will get some personal advice.

    Cheers