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
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.
P.S. sorry for the empty post (I pressed ALT-S when I shouldn't have).
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.
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.
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.