Hi,
My partner and I would like to sell our investment property, but we can't seem to get any answers regarding the amount of CGT we would be paying.
This is the situation…
– We are in Perth, WA
– The investment property (2 bedroom flat) is under my name
– We bought the flat in 2005 for $152,000 in order to live in it (primary residence)
– We bought a house in 2008 (this time under both our names) and moved from the flat to the house
– We started renting out the flat shortly after we moved out
– The current market value of the flat is now about $250,000Can anyone advise how the CGT would be calculated for this scenario, apparently it is calculated using the market value at the time we started renting out the flat, and not the initial purchase price when we bought it to live in. Is that correct? At the time we started renting out, the market value was around $250,000, which hasn't changed until now.
Any information/advice is much appreciated.
Unless you have a valuation made at the time you moved out you will pay a %. ie if you have owned it for 6 years and it was your PPOR for three years, you'll pay CG on 3/6 years.
So half of the gain (minus purchase costs etc plus depreciation). But you only pay half the CG as you have owned it for more than a year.So 250-152 = 98 (so without all the extra's) You'll pay tax on 3/6 of that so $49K but you only pay on half so you'll pay tax on $24,500.
It will be less due to other costs deducted.Catalyst is wrong about apportionment if you moved into the flat as soon as possible after settlement. If it was rented out after settlement and you moved in later Catalyst is correct. You will need a valuation. Instruct the valuer to value at the date the property became income producing
Thanks for your advice. Can you please tell me who can give the valuation? Can it be a real estate agent, or does it have to be someone from the tax office?
With all due respect to Catalyst and Crj as they have taken the time to answer your query and provided a detailed response but have you asked your accoutant these questions?
Tax matters should be run past your accountant for confirmation.
My partner has asked a couple of accountants, but they didn't seem to know how to handle this particular situation, one even recommened their most senior person getting involved at a rate of $360 per hour! We don't really want to waste money on something that shouldn't have to be so complicated.
Wow – that is not a good reflection on the accountants you have spoken to. CGT should be bread and butter to them.
The ATO produce a booklet for Landlords http://www.ato.gov.au/content/00270214.htm
They also have a CGT section available here http://www.ato.gov.au/corporate/pathway.aspx?sid=42&pc=001/001/038
I can also recommend a Perth accountant who can assist.
My reading of CGT matters would suggest your tax liability is close to nil unless you were were charging your partner rent.
The period until you moved out is CGT free (see note about partners rent above) – the period when you owned the second property is taxable. But given the gain has been negligible your tax payable, if any is negligible. A valuation can confirm the value of the property at time of departure. The documents linked above should clarify the nature of teh valuation – it is likely an experienced agent in the area could do this for you.
You could elect to treat the flat as your main residence and claim the CGT exemption for 6 years and pay little to no tax. But this would mean your new house would be subject to CGT up until the flat was sold.
Or
You could treat it as your main residence until 2008. This is going from main residence to investment property so a valuation would be needed for the time you moved out, ie in 2008. S 118-192 ITAA 1997.
Catalyst is wrong because the proportion calculations only apply when going from an IP to a main residence, s118-185 ITAA.
Only a licenced valuer can give a valuation.
Say it was worth $200,000 in 2008. You sell for $250,000 = $50,000 gain.
Deduct buying and selling costs say $20,00
Gain is thereby reduced to $30,000
Apply 50% discount = $15,000
This $15,000 is added to your taxable income and you would likely pay a max of $7,000 in tax.
I am not an accountant so this is probably incorrect.
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
I’ll back Terry on this one. Only a valuer can provide a valuation for these purposes, you may want it to hold up to scrutiny.
Generally, cgt will only apply from when you moved out up to sales date. Whereas the answer would be different if it were an ip first.
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