Treatment of depreciation for CGT calcs

[Jom]

Hi all

I've tried searching for this, and amazingly have not been able to find a clear answer...

I've just sold an IP and prior to the sale was claiming deductions through a certified depreciation schedule. I am trying to understand how this will effect the CGT paid.

Some basic figures to assist (hopefully simplifying rather than complicating the question):

Purchase price
$260

Sale Price
$320

Buying costs (incl conveyancing, stamp duties, loan est fees etc)
$15k

Selling costs (agent fees, conveyancing, bank fees)
$15k

Improvements
$10k

Owned for over 12 months, so 50% rule applies.

Based on this I'd be up for $20k in CGT, halved to $10k due to over 12 months of ownership.

However, this does not account for any depreciation claimed over the period. Given that I've claimed $7k worth of depreciation, how will this effect CGT?

Cheers
Jom

 

[geoffw]

It's only the depreciation on the building which will reduce your cost base, not depreciation on any fittings etc.

Your actual CGT will not be $10k in the above scenario- $10k will be added onto your income, and you will pay tax on that amount according to your marginal rates, so a maximum of $5K.

 

[Jom]

It's only the depreciation on the building which will reduce your cost base, not depreciation on any fittings etc.

Your actual CGT will not be $10k in the above scenario- $10k will be added onto your income, and you will pay tax on that amount according to your marginal rates, so a maximum of $5K.

Many thanks Geoff. So if I understand you correctly, in my example, say the amount I had written off as building depreciation was $5k, this would mean that I would be up for adding a total of $12.5k to my income for the financial year and I'd pay the marginal tax rate on that amount (ie max of roughly $6,250)?

 

[geoffw]

Many thanks Geoff. So if I understand you correctly, in my example, say the amount I had written off as building depreciation was $5k, this would mean that I would be up for adding a total of $12.5k to my income for the financial year and I'd pay the marginal tax rate on that amount (ie max of roughly $6,250)?

Sorry Jom, I don't know the answer to that. I'd have to leave that to the experts.

 

[coastymike]

You need to allocate your original purchase price and sales price between plant and equipment and land and buildings.

The depreciation schedule should tell you the wdv of plant and equipment on acquisition. If the wdv on sale of plant and equipment represents fair market value for those assets then that is fair.

So as an example

Purchase price 260k

Plant and equipment 20k
Land and buildings 240k

Sale price 320k

Plant and equipment 5k
Land and buildings 315k

Capital gain is calculated on difference between 315k and 240k.

I havent taken into account any division 43 capital allowances claimed during the period.

 

[geoffw]

Coastymike- do the acquisition and disposal costs get added to the cost base?

 

[coastymike]

Geoff

they sure do. I didnt include those in my example but they are added to the cost base.

just noticed as well the poster had included loan establishment fees. These are a borrowing cost amortised over 5 years. They arent added to the cost base.

 

[Jom]

Thanks Geoff and Mike, your answers are most helpful. I'll be taking this to my tax agent at the end of the FY, but was wanting a rough idea so that I can budget (know what to put aside) for CGT. You've been a great help, so thank you