Hi
I was recently talking to a client about lease options and tax when a tricky question came up..
One method used with LOs is asking for extra rent from the tenant, and crediting some of this rent towards the tenant’s eventual purchase price. This has the effect of the purchase price reducing like a PI loan, so the tenant could buy the property for $1 after renting for the full 30 years.
eg. $80,000 property. rents for $100 per week. Tenant moves in and pays $200 per week with a strike price of $100,000. this strike price reduces down to $1 after 30 years. Rental increases are linked to the CPI.
Lets assume the tenant lasts 30 years and buys the property for $1. The property may now be worth $1,000,000.
How would CGT be worked out on such an arrangement?
Does any one have any answers?
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Mighty fine question Terry.
Looking forward to the answer also..Regards,
Mark.
Hi Terry,
Not 100% myself, but I’m going to have a stab in the dark…..
I don’t think this would really be that different to a normal transactionI’m guessing if they sold the property on the day they took possesion for it, they’d have to pay CGT on $999,999. I’m sure if they stuck the 30 years through they wouldn’t mind sitting on it for another 12 months to reduce the CGT.
However if this is the case, since you’ve been paying tax on the monies received throughout the term of the lease, will there be a tax credit due from the capital loss on the property?What do you think?
Regards,
Mark.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
