Hi Everyone
Have just been watching Hot Property and once again saw somebody renovating a property and putting it back on the market in 12 weeks. Have seen this done on a number of occasions and am wondering is there some tax loophole re CGT that you benefit from by taking this approach??? If not – what is benefit is there in taking this approach????
NolaO
NolaO
hey…you get to be on TV….
mmm…that probably sounded more exciting back in 1965.
cheers
brahms
Mortgage Broker
[email protected]Originally posted by NolaO:Have just been watching Hot Property and once again saw somebody renovating a property and putting it back on the market in 12 weeks. Have seen this done on a number of occasions and am wondering is there some tax loophole re CGT that you benefit from by taking this approach??? If not – what is benefit is there in taking this approach????
Hi Nola,
Please note I am not an accountant and Julia may be able to shed an expert’s light on the matter but………..
If there is no rental income it may transpire that the property can be determined to be an ‘active asset’ and as such may qualify for deferral of CGT – hence the desire to buy, renovate and flick approach. Under these circumstances the gains would be classified as ‘income’ taxed accordingly so the minimisation of tax would be compromised.
Having said that I now stand to one side to see what the expert says.
I will move the thread to ‘Accounting and Legal’ where Julia is more likely to see it.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Thanks Derek, that sounds plausible – I was wondering if maybe they do it as their only source of income – therefore, would it all be classed as income rather than CGT?? Or is it something more complicated involving companies and trusts and juggling the profits somehow?
NolaOHi
Anything held less than 12 months doesn’t get the 50% discount on CGT, therefore the profit is income, and is just added to other income that you have earned that year.
Terryw
Discover Home Loans
Mortgage Broker
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Really “glad” you got there before me Derek. You opened a whole can of worms that I would not have considered in my original answer.
I’ll tell you what I do know but you can take decide what their motives are.An Active asset cannot be an asset just used to derive rental income it must be used in the course of a business and not as part of trading stock ie purchased for the purpose of resale. To qualify for the Active Asset concessions the asset must be held for 12 months.
If a CGT event is not protected by the 50% discount the tax is calculated exactly the same way as normal income. The only difference is that in some cases normal income isn’t taxable until you receive the money but a capital gain is taxable when you agree to sell it regardless of when you get the cash.
If you purchase a property as your main residence but can’t live there immediately after settlement due to the need for renovations you can still exempt it as your main residence during the period of time before you occupy it if you move in as soon as practial after the renos are finished and live there for at least 3 months.
If you move into a property straight after settlement and do all things necessary to make it your main residence there is no minimum time you have to live there before you can sell it with no CGT ramifications. But any prudent adviser would suggest you stay there for at least 3 months.
Julia Hartman
[email protected]
http://www.bantacs.com.au
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