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I’ve sort of answered this question in another post, however, I have problems with the whole acre/hectare conversions thing.
Bottom line….your principal place of residence and up to 2 hectares of land is CGT free, anything over the 2 hectares you’ll pay capital gains tax on. There is no time limit on how long you have to hold a property and live in it for it to be classed as your principal place of residence. However, I imagine you will have some issues with the CGT on the balance of the land over and above the 2 hectares.
For a definitive answer I suggest you call the ATO and ask for someone who can give you legal advice on the CGT laws regarding PPOR, size of land and 50% discount.
By own residence I take it you mean your principal place of residence…in that case no CGT on the house and 2 hectares of land, regardless of how long you have had it. Anything over 2 hectares – you’ll pay CGT on it if it’s been purchase after the implementation of CGT (Sept 1985 or thereabouts)
Have you been living in the house as your PPOR?
Capital Gains tax is payable on the sale of shares or property that is left to you in a Will. Shares you can’t avoid, but property – if you turn it into you principal place of residence then no CGT.
Cost base for a property would be taken at date of death (from memory) not the date that it was transferred to you. If you’ve held it for more than 12 months you’ll get the 50% discount.
Does that help?
If you are an accountant then you would probably be aware of the recent case handed down by the Administrative Appeals Tribunal regarding depreciation on rental properties. There was a short article on it in the CPA magazine at the beginning of the year. I think you can look up the actual case on the ATO website. It was FCT v McCormack from memory. The crux of the case was the plaintiff’s claiming of depreciation on things like kitchens, bathroom tap fittings, hot water systems, doors etc…all of which the commissioner denied.
As for what you can claim on a rental property in the way of expenses….the basics are, council rates, management fees, borrowing costs, interest, repairs and maintenance (be careful here as the ATO takes a fine line between what is a repair and what is an improvement and therefore depreciable), water rates, gardening, cleaning, etc.
The Quantity Surveyors report is an excellent investment, just make certain that the QS you choose is up to date with current Administrative Appeals Tribunal cases and ATO rulings. I believe that you must have a QS to claim the special building write off.
Hope this sheds some light on the issue. Oh yeah you can have a look for the article on the case I mentioned at CPAAustralia.com.au (I think) or just do a search for CPA Australia.
Just doing some basic maths here – feel free to correct me…
buy 1 property per quarter for 5 years. Figures worked on each property being $70k with your provided 10% deposit. That’s $28,000 per year in savings. That would be hard to achieve as a single person and even harder as a single parent.
Wouldn’t you need to be looking at a take home income of around $50,000 pa to be able to do this. I’m assuming that the rents received on these properties is going back into the mortgage or are you pulling cash from there to bring up your deposits.
I’ll admit right up front to being blonde and extremely grateful that it is Friday because I really need to go home and sleep.
Have a look on the ATO website…www.ato.gov.au and do a search for Motor Vehicle expenses. There are lots of ways to claim, but in your particular instance.
“I often drive from the follow sort of format
from H being home..H-A-B-A-H
and would like to know exaclty what i can claim”
A-B-A-H I would suspect.
Comdom hi, on the Tax side well…..
If you run it as a business and your turnover is more than $50,000 then you must register for GST. You claim back input tax credits on everything you spend renovating the place and pay GST on the sale price when you sell. Check with the ATO about the margin scheme regarding GST.
As for income tax. What you sell the property for less what it’s cost you to buy and renovate will be your profit in simple terms. You then pay tax on that profit at the applicable marginal rate. The standard Profit and Loss for someone trading would look a little like this
Sales
less Cost of Goods Sold
Opening Stock (what it cost you to buy the houses)
plus Purchases (any new houses you buy)
Less Closing Stock (Houses you’ve bought but not yet sold)
Equals Gross Profit
Less
Expenses
for example what it’s cost you to renovate
Equals
Net Profit – this is what you pay tax on.If you register for GST and I doubt that you could avoid it, you can pay PAYG Withholding Instalments quarterly – this is the tax you would normally be paying on your profit at the end of the financial year…you just spread it out instead of coping it in one big hit at the end of the year.
Does this go some one towards explaining things.
Bottom line….talk to your accountant but know what you need find out before you ask, accountants charge by the minute remember.
If your ONLY income was from buying, renovating and selling houses, I imagine you would be classed as running a business and the houses you are purchasing would be treated as stock. In much the same way as a share trader who aggressively trades shares for a living treats the shares purchased as stock.
You would therefore have an opening stock figure, which would be the value of the houses you have on hand at 1 July of each financial year. You would also have a closing stock figure which would be the value of the houses you have on hand at 30 June each year.
If you are running a business like this then capital gains tax does not apply as the houses become stock….just like shoes in a shoe shop.
If you are earning income from other areas, any capital gain you make on a property (investment) is taxed at the marginal rate. For example if you sold the property for a minimal profit that did not (when added to your other income) take you over the threshold (ie approx 20 – 50k is 30%) you would pay tax at 30% (not including medicare which is another 1.5%)
The problem becomes one of intention. Do you intend to carry on a business of buying, renovating and selling houses? This would be something the ATO would ask to determine whether or not you are running a business and whether or not your property purchases could be treated as stock.
Also need to know how long you have held the property you are going to sell and whether or not it has ever been you PPOR. Reason. If you’ve held the property for more than 12 months (ie 366 days) you are entitled to a 50% discount on the CGT. If you’ve lived in it at some stage as your PPOR, never declared another property as your PPOR, have been renting it out for less than 6 years…then you can still claim it as your PPOR and not pay any CGT.
I had a chat to the ATO about this topic….out of interest. They gave me three points to consider.
1. The purpose of the plan. The ATO said that if the idea was to claim deductions that you would not normally be able to claim, ie. rates, maintenance etc, they would consider it a tax avoidance scheme.
2. Capital Gains Tax – you loose the PPR exemption…..knew that one already.
3. Losses are quarantined in the trust.
The biggest thing the ATO had and they couldn’t drive this point home strongly enough was that they would consider this to be caught by Part IVA (Anti-avoidance section) as a scheme designed to avoid the payment of taxes.
I’m just throwing this out on the site for others to comment on. Perhaps Michael and Kaye have something to add.
The idea of selling you PPR to a Company or Trust and then renting it back yourself is, I am dead certain, definitely not allowed by the ATO. I think it was a case Phillips v FCT, but I’m open to correction here.
Is this vacant land – CGT is assessed on the increase in value (with some other factors thrown in) and you pay tax on the Capital Gain dependant on the marginal tax rate bracket you fall into.
There have been lots of CGT type questions and answers posted here in the past. Have a look back through or have a look on the ato web-site
Nothing unexpected there. Lots and lots of “cashed-up” southerners coming up to the Sunshine. God help them when we get a decent cyclone season.
Queensland prices seem to be on the up and the locals (I’m from the “hills”) say its because the people coming up from south are accustomed to high prices down there and are happy to pay those sort of prices up here. Not smart investing…but who am I to judge.
Boring old “beancounter” I’m afraid.[
][] Tax Accountant[}][}] on the Sunshine Coast.Michael as an accountant, I normally provide my clients with a copy of tax returns on request. If a client is leaving a practice (I’ve just started my practice and have a few clients from the old practice I worked with coming to me now), I normally request the following:
1. Copies of 2002 (prior year) tax returns for all entities ie. family trusts, unit trusts, companies, partnerships and individuals.
2. Copies of all BAS and IAS
3. Copies of all trust deeds, ie super fund, discretionary, unit hybrid and partnership agreements.
4. Copies of any/all correspondence to/from the ATO.
5. Copies of depreciation schedules.Most accountants won’t give you anything that they have prepared themselves, ie. work papers, bank reconciliations, reconciliations of BAS to financials and that sort of thing.
Hope this helps[
][]These were residential IP’s. Three units at Caloundra and one house at Perigian. There are (so I’ve heard on the grape-vine) a number of property developers on the Sunshine Coast who will do deals with E Banc Trade Dollars. But I also hear on the same grape-vine that the ATO are VERY VERY interested in the whole trade dollar set up.
You could talk to Greg O’Brien at Due Diligence Bureau in Maroochydore (don’t have the number) he could possibly give you some advice.
I’ve seen clients push through contracts with 120% of the property value as the contract price. But these deals have involved E Banc Trade Dollars and finance. 70% is financed, 30% is trade dollars and 20% comes back to the client in cash. I never could get my head around it.
The sale of any new residential property “that has not been sold before” is subject to GST….provided you are running a business…..tricky area.
You may actually have 2 CGT events happening. One on the land and one on the “improvements” ie the house. Holding costs can come off the cost base ie legals to buy/sell, agents commission etc.
Not a clue about the answers to your questions, but good questions to ask the real estate agent. Thanks heaps.
Max 1999 if you buy a property and renovate it, the costs of the renovation will be added to the cost base of the property. So if you buy a property for $200,000 and throw another $100,000 (big figures in whole dollars are easy to work with), your cost base for the asset (property) becomes $300,000. If you then sell that property for $500,000 you pay Capital Gains Tax (CGT) on the difference between your cost base and your selling price (less things like legal fees and stamp duty etc.) Therefore you would pay CGT on $500,00 less $400,000 = $100,000.
You pay tax on capital gains dependant on the marginal tax rate you are sitting in, ie. 17%, 30%, and so on. Whatever capital gains you make in a year is added to your other taxable income and then taxed at the appropriate marginal rate.
As for buying property in a company, see my other post in this topic (I think) about structuring. Buy in a trust for tax reasons never in a company. I’m certain there are people out there who will disagree with me!!!
Melanie, the company rate is now 30% fixed, therefore any profits in a company are taxed at 30%. You can retain the profits in a company, unlike in a trust, and whatever tax you’ve paid on those profits can be utilized to pay a fully franked dividend in the future. This all gets a bit technical. Melanie how do you know of Dymphna Boholt…..I used to work in her practice hence my knowledge of structuring for asset protection. Yes she is brilliant at what she does.
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