i am currently building a property in wa and expect to make a significant cg when it is built in feb of next yr. As the tax law states that i may only offset my interest payments ‘in a income producing asset’, then am i allowed to plough a certain percentage of my cg into a single yearly payment for my next build(again to recognise a cg).
Obviously ill get professional advice closer to the date, but just working out some projections currently.
Regards, ianOh and just one other thing…anyone recommend a good ‘switched on’ accountant in the Perth area?
Hi Ian,
Are you building to sell or building to rent?
Derek
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http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113This one I shall be building to sell for cg. Just riding the market at the moment over here, when it settles down i shall look at +ve cf, utitlising the capital built up in the current market.
Regards, IanHi Ian.
Normally any interest incurred in building a house and land package and then renting it is deductible.
The key issue is the purpose of the borrowings and NOT the fact that it isn’t yet earning income. This aspect of tax law has been recognised by the ATO and the legal process available to tax payers and is commonly referred to as ‘The Steele Case’ – I suggest you visit the ATO website and do a search.
When you do rent the property and later sell it any taxable gains are taxed at the relevant taxatioon rate.
I will preface my following comments with the ‘I am not an accountant disclaimer’ so please get a second opinion. While on this I would get this opinion now rather than later as you may find that there are some steps you can take between now and sale time which minimise your tax liability.
Given you are not renting this property but will onsell I suspect that the gain will be classified as income and the full gain added to your taxable income. Whereas if you held onto the property for 12 months from time of completion and put a tenant in it you would be eligible for a 50% CGT discount.
I also understand that the build and sell approach you are contemplating may have some GST implications.
As stated I have no qualifications and a discussion with a good accountant is recommended.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Many thanks for your replies Derek, it is appreciated.
On the point of the 50% discounted cgt, I am reliably informed from the Ato website that the event is deemed to have begun ‘upon the signing of the contracts’. As this was in January and the build should be complete in Feb (ie 13 months) then all things being equal I should be eligible for the discount, without placing a tennant in and not having to worry too much about the finishing detail.
But hell Im an electrician from the uk, so Im probably hoplessly wrong!
Regards, IanThe issue is whether or not the assets is classified as a passive or active asset.
An active asset (as I understand it) is relevant if there is no rental income earned. Under these circumstances an asset is not eligible for CGT reduction and profits made are classified as income without discount.
A passive asset (rental property earning income) is eligible for CGT discount.
But as I said previously no accounting quals.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Ian, I think you are right about the 50% discount.
I think that if you are doing this as a business you could possibly class the gain as income (rather than a CG).
It may also be possible to keep the gain as a capital gain.
Whichever is prefereable may depend on whether you have losses from previous years.
Terryw
Discover Home Loans
Parramatta
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