Does anyone know what happens in this situation.
Person A leases a property, plus for $2000 purchases an option on the property.
Rental is set at $300 pw, of which half is to be credited towards purchase if the option is exercised. During this time person A sublets the property for $250pw, and claims the difference as a tax deduction.
After two years (and $5k in tax deductions) person A cannot afford to purchase the property and sells the option for $3k.
I understand that if person A purchase the property themselves the correct accounting proceedure would be for an adjustment to be made to reflect that the credits become capital costs rather than expenses.
If person A could not purchase the property and subsequently sells the option one would imagine that the tax deductions for person A would stand, but how would the purchaser account for the $5k in credits? Say the purchase price was $200,000, is this the capital base cost for CGT purposes etc, or is the actual cost, or $200k +3k for option – 5k in credits = $198,000?
What would happen if the option was actually sold to the “Person A family trust”. Person A has claimed the $5k as an expense, then the trust uses it to reduce the price it pays for a capital assett?
Thanking you in anticipation.
Graeme
Very sorry,, I just read my post and realise the thax deductions are $5k, but the credits amount to $15k.
This makes the actual cost to the purchaser of $188k.
Would an arms length purchaser get a CGT base of $200k (the contract purchase price) when it effectively only cost $188k ??
Could Person A get a $5k tax deduction while the trust gets $15k towards the purchase price?
Graeme
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