Can anyone tell me, what are the tax implications in australia, where you have your own home, buy an investment prop, renovate and sell it straight away wihtout ever putting tenants in it?
I have heard you may not be able to claim any of your costs, and the ATO could treat it as a profit making scheme?
The ATO would certainly treat it as a “profit making scheme”. Your costs would be deductible and you would be liable for CGT at the highest level if you sell within a year.
It sounds like you are from overseas though so I have no idea what tax implications you would face if you are a foreigner.
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Hi ivanaw
It seems that your main issue is how you can recoup the money you’ve spent on the renovations.
From what I can gather, there are two possible scenarios: you will be treated as being in the business of property development/renovation; or you will not be treated as a business.
If you were found to be in the business of property renovation/development, then my understanding is that all of your expenses will be deductible as business expenses. BUT, assuming that this is an isolated renovation that you are working on, which it appears to be, this will not apply.
It seems far more likely that you’ll be treated as engaging in an isolated transaction, and not a business. In this case, there will be CGT and income tax ramifications.
Anything that you do to the property that is deemed to be a repair (restoring something to its original condition) will be a deductible expense [although, for it to be deductible, you’ll have to show that you used the property solely for the purpose of earning income – which I think you are, BUT given you’re not renting it out, I’m not too sure].
Anything that you do to the property that is deemed to be an improvement (used different materials, totally replaced items etc) then those costs are not tax deductible. BUT, they will reduce the amount of CGT you have to pay because you can add them to the cost base of the property. So, you will be able to recoup some of the “improvement expenditure” through reduced CGT payable.
As a side point, remember that you must hold the property for more than 12 months to get the CGT discount.
Hope this helps
Thanks guys. That kind of confirms what I thought all along. I got my wires crossed because I was reading all the guides on CGT for rental properties, but my IP couldnt ever be called that since it is never rented out. IT should be treated as a capital asset used to generate income, which it will.
Id expect that I could claim all my outgoings, same as any business. I dont see what business of the ATO it is, whether its a repair or improvment as they define it, because either way it is used to improve the value of the property, and thus the amount of assessable income (captial gain).
Increasing the cost base is the same as getting a tax deduction in my book. Either method reduces the assessable amount for tax…yes?
No, not foreign, Im an Aussie.
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