Will I have to pay Capital Gains Tax?

Monopoly,

I spoke to my tax accountant and solicitor earlier today who said a couple of things. Could you confirm whether what they said is true (from your undersatnding of it).

My solicitor seemed to think that the CGT would only be calculated on the difference in the value of the property between the time that I first started renting it out to the time that I sell it.
Is this right?
Yes this is correct.
You will need to have a valuation done for the time you moved out to establish the property’s worth at that time.

My tax accountant said that the CGT would be proportioned to the period that it was actually rented for, i.e. I have owned it for 2.5 years and it’s been rented out for 1.5 years of that time, which equals about 60%. Therefore we only pay CGT on 60% of the capital gain.
Again he is right.

So for example…

I brought my place for $196,000
It will sell for around $296,000
Profit of $100,000
Capital Gain = say about $85,000 (after expenses, etc)
50% discount reduces it to $42,500 (for owning/living in more than 12 months)

60% of that is $25,500
Not at straight forward as this, as you need to know the value of the property at the time you moved out.

divide by 2 (my partner’s half) equals $12,750
30% marginal tax rate (lower income) of $12,700 which equals $3,825 in CGT we have to pay???
I am terribly sorry, my mistake, I read your situation the other way round, that is I based this on your IP being in both names, and your new home in just one name (yours) therefore this deduction is not applicable.

Here is a link that you can use to put in the figures you gave me to help you determine the amount you would probably have to pay. Please remember it is a guide only, and many other variables are not considered which can help reduce the amount.
http://www.cch.com.au/cgi-bin/cgt00isapi.dll/

Based on the information you have given me, I worked it out as follows:

Your COST BASE which is the VALUE OF THE PROPERTY at the time you moved out (let’s say):
235,200 (a 20% gain in one year)

296,000 Sale price
235,200 – Value at 2003

Jo

Has absolutely nothing to do with your mailing address. This history of this particular tax law was to make concession for public servants and others who were posted interstate and overseas for work. ie although they did not live in their old house there was no capital gains tax liability when it was sold. The reason being that you should not be punished for moving away for work etc.
And I agree, you shouldn’t be. This is partly correct, and I say PARTLY because yes you can move overseas on a working visa or transfer etc and not be penalised with CGT should you sell your property back home (no argument there)!! However, you are assumingly renting, staying with friends/family, company is paying for your accommodation etc whilst there; you are not claiming another place as your main residence (in the sense of OWNERSHIP) different ball game!!! If we are talking about being transferred for work overseas, then mailing address is not an issue, but that is not what is being inferred here. For the majority of people, the mailing address has a huge role to play in it. Check the ATO details as to what constitutes a “main residence” (in general terms).
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As your sister will tell you the tax act (looking at a copy now) is 4 brick sized volumes.
And hurts like heck when it falls off your bookshelf and onto your foot, as mine has done on many occasions!!! [bawl]

Almost every assest can incur a CGT liability unless it is exempt.
But not every asset is appreciating in value, therefore it stands to reason that they are exempt!!!

http://www.ato.gov.au/individuals/content.asp?doc=/content/43486.htm&page=6#P615_59668
I understand the different between a collectable and a personal asset, but you need to keep in mind that MOST are not going to trigger a CGT event, however can be depreciated against an income generating asset ie. rental property.

Things like collectable art, wine and cars also incur the liability.
Because as collectibles they are APPRECIATING assets. And although I collect shoes (that is I have a fetish for them) it doesn’t mean these will be subject to, or exempt from CGT!!!

( Would have to be a very diligent taxpayer to declare realized capital value increases in some of these items.
And not a very wise one should you ever be audited, but then people will try on just about anything to make a claimable deduction, and I guess argued enough you MAY just get away with it. I’m not trying to be difficult here, all I saying is YES YOU’RE RIGHT to an extent but you need to differentiate between an appreciating and an depreciating asset, and their correlation to reducing the CGT event.
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However, most CGT event relate to contracts and the assignment of property rights such as real estate.
Of course, ownership needs to be established. No seriously, this is very important but many people do not understand this.
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Don’t take it the wrong way just trying to explain what I was getting at before. The items that are exempt probably won’t increase in capital value anyway.
And therein is your key!!!

I am not taking it the wrong way at all. I personally just think that you need to be very very careful about the things you say in a public forum, that will give those not so clued up on their tax rights the wrong impression. Cars, household items are NOT CGT incurring items, they are DEPRECIATING/ABLE items that can be used to re-calculate the cost base in the event of a sale of a CGT (appreciating) asset.

Thank you for your explanation. I know now what you were referring to, but unfortunately your reference to these items will only confuse those who are not as versed in tax laws, and are here mainly to discuss PROPERTY. [blink]