Hi everyone
Just read the posting on CGT for +ve gearing, and was wondering. When negative gearing and claiming the capital allowance (2.5% / 40 yrs) on an IP, is 50% of the amount claimed added to the amount Capital Gain Taxed when the property is sold?
Also is the value of the property indexed with inflation for the CGT calculated?
Just to clarify, the “capital allowance” I’m refering to is the building construction cost write off.
CGT has a component called cost base. the building writeoff is taken off your cost base. Capital gain = Sale proceeds minus Cost base
Then CGT = 50% x Capital gain
There is a date involved when building write off is added to the cost base I can’t remember the exact date it is approx 1998
Also any deductions used against rental income cannot be also added to your cost base. Like holding costs or maintence. This is known as double dipping and is not allowed.Indexation can be used but depending on when you purchased the property it may not be worth indexing. Since 1999 the CPi indexation figure has remained at 123.4 for any year after 1999 so any property purchased after 1999 will have an index factor of 123.4 / 123.4 which equals one. The indexation is done on the cost base I would suggest calculating out what the (cost base times the index factor) minus the building writeoff would be as opposed to the 50% method.
you can’t use both methods it is indexation or 50 % method but also you must hold the asset for more than 12 months and be an individual tax payer. .the magic date is the 13th of may 1997 – property purchased after this date is subject to a reduced cost base if building writeoff depreciation is used.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
