Greetings all,
Scenario:
I buy a house/apartment for $250K and perform $10K in renovations. I then sell this apartment for $275K 3 months later.
I have bought in my name (no trust structure)
I have borrowed $240K as an interest only loan for this project
It is not my PPOR
It is never rentedI think this is a reasonably common scenario, yet the ATO site doesn’t seem to even reference it. From what I can gather CGT doesn’t apply to me as I have not used it as an investment to generate income and I just pay tax on the profit at my personal income tax rate.
I cannot claim any deductions for renovation work. I am unsure if the interest paid on my loan in this time is tax deductible? Are there any deductions at all in this situation?Any advice/opinions on the tax implications of this situation would be appreciated.
Cheers,
[email protected]Anything I say may or may not be wholly or partly incorrect.
– Yes you will need to pay CGT. 3 months = no 50% discount.
– If this is your main form of income, the ATO may deem you to be “carrying out a business” of renovating houses. The same applies to those flipping houses. What, they didn’t tell you this on Hot Property?…
Hmm, I might be wrong then.Try http://www.ato.gov.au/print.asp?doc=/content/57402.htm for some better information.
F.[cowboy2]Thanks foundation, a very interesting link. I believe I would fall in to this category;
snip
profit making activity of property renovation, your position may be briefly summarised as:- the CGT discount and the main residence exemption do not reduce your net profit
- your net profit (or loss) is included in your income tax return – it is calculated as the difference between your receipts (such as money or other goods of value) from the sale of the property and the costs incurred in buying, holding, renovating and selling the property
- if you make a net loss, it can reduce your other income for the year
- you also make a capital gain from the property, however, your capital gain or capital loss is effectively reduced by any amount of net profit or net loss included in your return, and
- in the unusual case that your capital gain exceeds your net profit, other capital gains tax concessions may apply.
snip
I am particularly interested in the second point “your net profit …. is calculated as the difference between your receipts …. from the sale of the property and the costs incurred in buying, holding, renovating and selling the property “This says to me;
Sale of the property $275K
deduct agents fee’s, interest on repayments and renovation costs = about $12K ??? huge guess
Net profit = $3000 (wow don’t spend it all at once)
I would then pay tax on the $3K as per my income tax rateSeems logical, I will search for further clarification on “costs incurred in buying, holding, renovating and selling the property “. Do loan repayments count? I am guessing not [glum]
Thanks again,
Cheers,
[email protected]If you’re carrying out a business, then interest costs would absolutely be legitimate deductions.
Sorry, just realised I’d unwittingly been posting in the Legal/Accounting section, and wanted to point out that I’m qualified in neither field… Come to think of it, I’m technically qualified in no field.[blink]
mcdeyess, I hope you haven’t filled out your tax return yet… Prob’ best to run your ideas past an accountant.
F.[cowboy2]I am not carrying out a business…. yet. I wanted to try my hand with a few renovations and see how it went.
I only have one investment property and was looking to do a few reno’s next year. My tax is all sorted this year, I am planning how things will go next year. I am one of those crazy people who likes to do some research before spending lots of money [weird]Thanks again for your assistance.
[email protected]Originally posted by mcdeyess:
snip
I am particularly interested in the second point “your net profit …. is calculated as the difference between your receipts …. from the sale of the property and the costs incurred in buying, holding, renovating and selling the property “This says to me;
Sale of the property $275K
deduct agents fee’s, interest on repayments and renovation costs = about $12K ??? huge guess
Net profit = $3000 (wow don’t spend it all at once)
I would then pay tax on the $3K as per my income tax rateSeems logical, I will search for further clarification on “costs incurred in buying, holding, renovating and selling the property “. Do loan repayments count? I am guessing not [glum]
Thanks again,
Cheers,
[email protected]This sounds correct to me. Don’t forget you can claim other things too such as travel, accounting, loan costs etc.
ps hope this is theoretical as there doesn’t seem to be any profit!Terryw
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Thanks Terry, this sure is theoretical. I am just trying to put the research together for how this whole thing is going to work. My partner and I are young, have time, equity (from our 1 ip) and cash. It is just a matter of whether the market in QLD is right and if we can make a profit that is worth our time. We both enjoy looking at the property market and trying to find a bargain so for the next year or so this is going to be a hobby outside our normal rat race jobs.
The research continues, I am sure you will all hear more from me if we progress. I hope to one day be able to give some advice on these forums instead of just asking questions.
I am meeting with my accountant later in the month so will be talking with him about what options are available, I appreciate the info I get on this forum as it means I get a lot more out of the time I spend with a tax professional.Thanks again to all who responded.
Cheers,
[email protected]
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