Rent credit as a capital gain

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From: Susan Pope


Hi All,

In a lease option, I understand rent credit is a capital gain.

Ignoring expenses that would reduce CGT, is it the case that:

1. in year 1 of a 3 year lease option, any rent credit I receive as an option seller will be taxed at my full rate; and

2. in subsequent 2 years, rent credit will be taxed at half my full tax rate,

because by then asset has been held for more than 12 months?

Am I on the right track? (It doesn't feel like I am.)

Anyway, I'll continue.

What happens if optionholder doesn't exercise and an agreement had been made to refund a percentage of rent credit?

Also, what happens if I choose not to receive any rent credit for the 1st year - is that tax evasion according to the ATO??

Sorry if these are really dumb questions - I've been reading generally on LO's and not hunting down an LO-friendly accountant until I have an idea of what I'm talking about!

Regards,

Susan
 
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Reply: 1
From: Dale Gatherum-Goss


HI Susan!

I don't have any direct experience with lease options, so I cannot really answer your question with confidence.

However . . .

Your contract is the first step. It will define your business activity which, in turn, will define the way that the tax office views your income.

So, I suggest that you have a close read of your contract and discuss the relevant issues with your solicitor. And, once you find one, your accountant.

My first thoughts were that I do not expect CGT to be an issue because of the nature of your business. That is, you are effectively selling houses as other businesses might sell stock. So, you may not be eligible for the CGT concessions.

I'm happy to be corrected on this point as I do not know for sure and am merely thinking out loud in an effort to help you. Please seek specific advice from an accountant who deals in this area.

I know that there is a web page established by Andrew Gray at:

http://www.creativerealestateinvesting.com.au/default.htm

He wrote a book or manual on lease options that might be helpful to you. The forum there might also know of people who you can talk to in WA who might be able to help properly.

I apologise if you already have this information.

Good luck and I'm sorry that I cannot be much help with this question.

Dale
 
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Reply: 1.1
From: Susan Pope


Thanks so much Dale for your reply.

Someone asked me the question based on information they had read (and perhaps incorrectly interpreted) in the Handbook you mentioned. I can certainly understand your line of reasoning regarding nature of business and I agree with you.

Generally, I have found by posing questions to this forum, responses have opened up other issues as well. If I have an idea of what I need to find out before I have an interview with appropriate professionals, it should save some time.

So any thinking out loud by you is most certainly appreciated!!

Regards,

Susan
 
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