Capital Gains Tax – My $60k Mistake??

You need a new accountant. See Terry’s post above.

This is a great thread. A dilemma that is not uncommon, so I think it will be re-read by plenty of folks sifting for answers in the future. Great straight-to-the-point answers from Terry also :)

Hi Bruno,
I just noticed that your last question did not seem to get answered :-

I’m still confused though. Based on the clause that Terry mentioned, does that mean I should only be paying CGT on that initial 3 months where there was a tenant from the lease rolled over from the previous owner? Even though it was rented out again after I had lived in it for a year?

Though I am not an accredited adviser, I believe the answer to Bruno’s question is “Yes”!

I believe it is CGT exempt from the moment he moved in, AND for the years that he was in London as
(a) he had made it his PPOR by living in it, and
(b) while living in London he had made no other property his PPOR, and
(c) On returning, he moved back in with his folks, so not claiming another property as PPOR either.

On that basis I believe his property is CGT exempt for up to 6 years after he moved out of it to go to London.

I am NOT sure whether it can be CGT exempt while it was still leased (before he moved into it). Since his intent was to make it his PPOR, and he moved in as soon as practicable, I would not be surprised to hear that it is CGT exempt for the whole time since purchase. (It passes the “reasonable man” test for mine…)

But I will leave that question for Terry and the other advisers who are qualified in this area.

Benny

Thanks Terry. Always good to get clarification from those who KNOW !!

So, for Bruno (and interested others) I want to flesh out the likely situation and maybe determine what amount Bruno ended up paying in CGT.

First, the title says he was looking at a $60k mistake – from that, I infer that he was looking at having to pay that much to the ATO. Wow !! That is a big gain – how could that be?

Let me assume that Bruno earns money at the top marginal rate – let’s say 50% for ease. So, that means he has made a Taxable gain of $120k, or a Nett Gain of $240k over those 5 years with the 50% discount. Near enough?

OK, but now, with Terry’s help, we know that the actual Taxable gain is calculated by dividing 90 days by total days owned. Bruno is talking around 5 years, but could be as short as 4 years. So let’s say 1500 days (about 4 years) and calculate CGT from that.

Nett Gain was still $240k, but then take 50% off as a discount for holding it more than 12 months. So $120k is Taxable Gain, but then take 90/1500 of that to get $7200 Taxable Gain. Bruno would then (at top Marginal Tax Rate) pay 50% of that, so $3600.

WAY better than the $60k he was initially looking at, wouldn’t you say?

Benny

Terryw wrote:

Or to put it another way, Bruno’s accountant almost cost him $56,000 on top of his other fees.

I hate to think how many times this happens @terryw! Imagine if the forum distributed dividends for all good advice leading to savings made or costs avoided???

Terryw wrote:

It happens heaps, but often the other way around. Accountants may tell a client they can claim something when they cannot. This is very common with interest. Probably half clients that come to see me are probably claiming more than they are entitled to, while the other half is claiming less.

@terryw in the case for the Accountant over claimed what cannot be claimed, who’s fault is this when the client gets audited by ATO red handed ?