Would anybody like to have a go at this question,
If your sole income was from buying and renovating properties would you pay the higher rate of tax 48.5
when you sold the property whithin 1 year or would it be at the normal rate? [
][]If the renovation work was done a property that was your principle place of residence then no I would not think so, however if it was an investment property then depending how much you made ( taxable income )then that amount would be used to work out the amount you would likly have to pay. That is my understanding anyway[
]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.
Thankyou Kelly that was exactly what i needed to know and yes running this as a sole buisness is the intention. BUt i dont understand the tax side of it.[
]This question has been raised on other sites and is a tricky one, because you are doing this for a living, you may be seen by the ATO as a business. Therefor you maybe forced to register and pay GST as a property developer, So you best get some professional help with this from a taxation lawyer or a accountant.
[
][][]The ATO have a list of criteria for determining whether a person is running a business or not. Go to their website and have a look or give them a ring.
You can then decide from that information whether or not what you intend to do is an business and what your obligations are.
Some links:
http://www.ato.gov.au/businesses/default.asp?menu=824http://www.ato.gov.au/businesses/content.asp?doc=/content/25375.htm
http://www.ato.gov.au/businesses/pathway.asp?pc=001/003/039&mfp=001/003&mnu=841#001_003_039
I’ll say it before someone else does: see your accountant.
Michael
Much appreciated for the information thanks for your advise.[
]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.
Thankyou Kelly1100 i do understand now, that has cleared things up for me and saved me a little time and money.
Thanks again Dom
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