I am wondering if someone can clarify this for me. ?
When a purchaser pays a deposit either out of their own funds or with the FHOG or a combination of both how is this accounted for?
Is it straight income, return of equity, part income,part emerging profit or something else ?
On the example given by Dale Gatherum Goss in the proposed tax paper it appears as straight income. Does this mean in the following (exaggerated)example one would be up for income tax on $50,000??
Purchase price $100,000
Deposit $20,000
………….Wrapped for $130,000
Purchaser deposit $50,000I am sure it is real easy for acountants but the whole thing has me somewhat confused at the present.
Thanks a lot,
BobEdited by – [email protected] on 28/07/2002 6:58:30 PM
Bob
I think the scenario you have used is fine but your tax treatment of it may need some clarification .
The paymnet of the monies does trigger a tax issue but the actual tax is based on the profit of the sale over the period of when you receive the paymnets . The profit is Sale less cost of sale ( ie $130k less $100k ) equals $30k profit, this is spread over the time you receive the profit , when you receive this is when tax is payable .
Therefore you received $50k of the $130k price so you would be up for 50/130 of $30k profit in the first year . As you receive repayments a portion of each repayment received is profit and triggers a tax amount .
Tax is not based on cash flow as you had shown it takes into account sale price less cost and then you apply this as you receive it .While I am not a tax accountant this seems to be consistent with my investigations on this matter .
Good Luck .Thanks Stephen, this does make sense.
Bob
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