Hi,
A quick question on CGT that is probably best summarised by the below example.
If I purchase a property in my own name and live in it for 12 months then sell it and walk away with a $100k profit (after performing a $60k renovation) am I liable for CGT? (Note: The intended purpose of this property is to produce a profit)
If I am liable for CGT and I qualify for the 50% discount, I understand that $50k will be added to my Yearly Income and taxed at the my tax rate – what happens to the other $50k, does that go straight into my pocket as profit?
Responses would be very much appreciated.
basically your right.. I'd say "your profit will be taxed at marginal rates subject to a 50%", rather than "half is taxed and the other half is untaxed"… but you know, you say tomato
personally.. in the example you give I'd only give up my PPORE when they pried it from my cold dead hands.. but thats just me.
consider this:
"I'll buy a property, renovate, and sell at a profit. But while I'm renovating I may as well live there for the sake of convenience."
which is very different to
"I'll buy a residence for myself, but probably renovate to make it more livable. Thereafter if its had good capital growth I might sell"
for practical purposes the situation is the same, but for the tax office the two scenarios are very different.Many thanks for you response – just to clarify does that mean:
1. the full profit (ie: $100k) is taxed at my marginal rate on top of my p/a income, or
2. (P/A income + $50k @ Marginal Rate) + 50% on $50kI will be seeing my accountant about these details but want to draw up my business plan with the number to make sure I’m making best use of his time.
Adz123 wrote:If I purchase a property in my own name and live in it for 12 months then sell it and walk away with a $100k profit (after performing a $60k renovation) am I liable for CGT? (Note: The intended purpose of this property is to produce a profit)
If the ATO knows your purpose and determines it is a "business", you are up for full income tax plus perhaps GST.
If it is determined to be a "profit making scheme" then CGT is the primary code for land and you get the 50% discount. But perversely, the concept of an enterprise for GST is much wider than a business.
Main residence exemption and/or discount is only available if CGT applies. No CGT will apply to the extent that you are assessed under another provision (no double tax).
Make sure your Accountant knows your intention.
Cheers,
Rob
Is it your only property?
If I read your question and somehow missed the final sentence, and it is your only property, you could argue that it was your PPOR for the time you were living there and any profits would be exempt from CGT due to the main residence exemption.
It would also be free from income tax as you would not have been running a business.
As Rob says above, if your primary intention is to make a profit, then you could be up for tax on the full $100,000 profit at your marginal rate.
As you can see, yopur intention is very important, and sometimes costly.
Appreciate the responses, and i will be following this up with my accountant and making sure that he is aware of my intentions so that the right structure if need be is implemented.
With regards to my original question and the 50% CGT discount – does this discount mean that $50k is NOT taxed and can go straight into my pocket?
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