purchase of IP and Capital Gains Tax issues

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Reply: 1
From: Tim Willis




In a husband and wife situation if an investment property was to be
purchased outright, (ie with proceeds from the sale of a business),
1) what detirmines how the income derived from rent returns is treated for
each party.
2) what detirmines how the capital gain from the sale of the property 10yrs
on is treated for each of them.

How is CGT calculated


This question is based on the situation my parants have found them selves
in. Business sold about 10yrs ago, so investment properties purchased and
now are looking to sell to start enjoying some life. There is a trust tied
up in here somewhere, that supplied half the funds for the property in
question. I think their accountant is not really acting in there best
interest, (or hasn't in the past). Can someone suggest a good investment /
retirement advisor is sydney, I think this should have been done 10yrs ago.

Thanks for any input.


Regards,

Tim Willis

P.S. sorry for the empty post (I pressed ALT-S when I shouldn't have).
 
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Reply: 1.1
From: Dale Gatherum-Goss


Hi Tim

I can't recommend a good financial or retirement advisor, I am afraid, but, I can answer the CGT questions.

Assuming that there the property was bought in joint names, the Capital Gain will be split equally between them and they will each pay tax on their share.

However, sometimes the ownership is set up with ownership nominated as 99% and 1% respectively for various reasons and if this is the case, then the Capital Gain will also be apportioned in this way.

The trust will complicate matters depending what it is being used for.

Good luck - it sounds like you're going to need it.

Dale
 
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Reply: 2
From: Tim Willis


Well I got it wrong, but things may be worse,
- Investment Property was purchased in one name Mr X, by funds from the sale of Mr X's business.

- The rent seems as though it was paid into account in joint names but income shown on Mrs X's tax return.

- Now the property has been sold who should the Cap Gain be attributed to.

How should this have been done. What is behind the discounting of CGT (if it exists). At this stage I am trying to persuade Mr X to seek advice, but he has always been loyal to his accountant, he was once a major account when the firm was new, but since has his case handled by juniors as they come into the firm.

Thanks for any help here.

Regards

Tim Willis
 
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Reply: 2.1
From: Dale Gatherum-Goss


Hi Tim

This does look interesting. . .

The tax office view is that the person whose name is on the title is the legal owner. In which case, the income should be shown on their tax return.

The same would apply for CGT purposes.

As for the 50% exemption, this applies if the property was owned for more than 1 year - which we know that it was.

Therefore, to work out the CGT:

Take the sale price
deduct the costs of selling such as legal fees and real estate commissions
deduct the original purchase price
deduct the costs involved in buying the property such as legal fees and stamp duties

This should give you a Capital Gain.

from this, we deduct any Capital Losses from previous years, which will leave us with a net Capital Gain.

1/2 of this net Capital Gain is exempt and the other half is taxed at the marginal tax rate of the person declaring it.

I hope that this helps.

Dale
 
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Reply: 2.1.1
From: Tim Willis


Dale,

this is getting more interesting every time, thank you very much for you
words, I think I had better push Mr and Mrs X to seek a bit better advice
than they have been getting.

I don't know how you find the time to read and answer so many posts on this
forum, your opinions are alway worth reading.

thanks

Tim.
 
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Reply: 2.1.1.1
From: Dale Gatherum-Goss


Hi Tim

You are more than welcome, I hope that I helped in some small way.

Have fun

Dale
 
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purchase of IP and Capital Gains Tax issues

Reply: 2.1.1.1.1
From: Tim Willis


This should be my last post in the dumb question department, but I have to
learn this stuff some how.

When investment property is sold is the cost price of the property indexed
with CPI in order to calcuate the capital gain.

eg: capital gain = sale price - (cost + CPI increases) - expenses
incured as mentioned earlier

If this is not so was it ever the case.

ta,

Tim
 
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purchase of IP and Capital Gains Tax issues

Reply: 2.1.1.1.1.1
From: Dale Gatherum-Goss


Hi Tim

Indexing the cost price was the rule until Sept 99. Now we have a choice whether we will use the indexed cost or the 50% exemption. You cannot use both!

Generally speaking, there will be more benefit in using the 50% exemption, but, if you provide the accountant with the dates of purchase as well as all the other costs etc, he/she should easily be able to calculate both and tell you which one results in the lower tax.

It's not a silly or dumb question at all.

Dale
 
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purchase of IP and Capital Gains Tax issues

Reply: 2.1.1.1.1.1.1
From: .watto .


The Dumb questions are the ones you think you should ask but are to scared to ask because you might look dumb....


Cheers
Watto
Melb Freestyler
 
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