All Topics / Help Needed! / CGT – how

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  • Profile photo of deepak6574deepak6574
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    @deepak6574
    Join Date: 2012
    Post Count: 14

    Hi All

    Just new to this forum. i have been reading up a lot here in the last 2 weeks and noticed there are some very well educated people sharing their views/experience with newcomers. truly great work guys and your views are greatly appreciated.

    Now to the question i have. if i were to sell my place today (having lived in it for 12 months), i do not have to pay CGT (pretty straight-forwad) but what if i keep repeating this every year (not that its possible) whereby i build a house, live in it for a year or 6 months, sell it for profit and move on. will ATO give me CGT exemption every time i do this (provided i meet the requirement) or ATO then somehow says hang on…you can not do this every year and if you do we will classify your profit to be income (not capital gain) and therefore tax it as per you tax rate.

    Can someone please clarify this for me?

    Appreciate your responses.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    If you are doing it as a business then tax would be payable eventually

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of peiranyupeiranyu
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    @peiranyu
    Join Date: 2012
    Post Count: 15

    Hi there Deepak,

    exactly like Terry said, what you said is sound like a business. If you build a new house then sell it after you live there for a year, not just no CGT exemption, you might also need to pay GST, you'd better talk to your accountant to disscuss this. I'd like a accurate reply too.

    happy to discuss

    peiranyu

    Profile photo of TerrywTerryw
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    @terryw
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    Ah, yes GST could be applicable too for the first 5 years that the property when the property is sold.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of deepak6574deepak6574
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    @deepak6574
    Join Date: 2012
    Post Count: 14

    Thanks guys. will certainly check with the accountant and post a reply here.
    Again, thanks for your responses

    Profile photo of blackhotelblackhotel
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    @blackhotel
    Join Date: 2010
    Post Count: 140

    mmmm, hang on. If you live in a property for more than 12 months you simply comply with the requirements set by the ATO, your entitled to CGT free. You can do this (buy & sell) for the rest of your life CGT free as long as you live in the property for a min of 12 months. GST is applicable to Commercial/industrial property when you sell, not residential. Again, this can be avoided also if the property is leased, no GST is applicable. Now there is a loop-hole here. I just sold a commercial property with no lease, however upon the sale the buyer signed a lease PRIOR to contract date, hence no GST applicable. Loop-holes are not only for the rich to exploit but it's there for the informed.

    Profile photo of deepak6574deepak6574
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    @deepak6574
    Join Date: 2012
    Post Count: 14

    Thanks BlackHotel

    And that’s exactly why asked this question. by living in the property for 12 months, you comply with the law and become CGT exempted. I remember one of the accountant in the past saying “you can’t do this year in year out as ATO will view this as a business”. but i am not convinced that this is the case. what criteria does ATO uses to determine that its a business when the law says you can do this. However, I will be checking this with 2-3 more accountant to see what they think.

    Profile photo of DerekDerek
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    @derek
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    The ATO uses a test called 'is this normal behaviour" to test the validity of actions by some tax payers.

    How many people do you know who legitimately build and sell a property every 12 months?

    I would go with the accountant and Terry on this one.

    Profile photo of deepak6574deepak6574
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    @deepak6574
    Join Date: 2012
    Post Count: 14

    Hi Derek

    A fair point that ATO runs a test to determine normal behaviour. question is: when and what triggers them to run this test. Surely, people can get away with it initially for the first 2-3-4 times before ATO is able to determine a pattern of abnormal activity but when discovered ATO will say “you do this next time, we will tax you”. so there is some process @ ATO which flags this activity to them. Now, we all know ATO will do all in its power to tax people as much as it can but in saying does it mean that ATO has the power to overrule law in some cases.

    100% agreed that its very much impossible to build and sell every 12 months. i put up my comments for argument sake only.

    will check with an accountant and let you all know.

    Thanks guys

    Profile photo of NuchaNucha
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    @nucha
    Join Date: 2012
    Post Count: 8

    Hi forum

    I’m also in awe of the knowledge some of the forum members have and really enjoy reading the replies. Thanks.

    Sorry if I’m showing my ignorance here but I have a question about CGT too. I’ve just retired and next year will not have a taxable income so won’t need to lodge a tax return. I plan to sell my existing home. With the cash I plan to buy then renovate and sell another PPOR, holding each time for the required 12 months to qualify for CGT free status. I would like to do this progressively about 3 times. I’m sure I’ll be completely exhausted by then! but hopefully a little better off financially. I know I should ask an accountant but unfortunately I don’t have one now.

    So my question is this, how will the ATO assess this if I’m not lodging a tax return? Or, do I have to lodge a return showing no income but just showing the sale of the property? I’m keen to hear your opinions on this strategy. Thanks in advance.

    Profile photo of NuchaNucha
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    @nucha
    Join Date: 2012
    Post Count: 8

    Hi forum

    I’m also in awe of the knowledge some of the forum members have and really enjoy reading the replies. Thanks.

    Sorry if I’m showing my ignorance here but I have a question about CGT too. I’ve just retired and next year will not have a taxable income so won’t need to lodge a tax return. I plan to sell my existing home. With the cash I plan to buy then renovate and sell another PPOR, holding each time for the required 12 months to qualify for CGT free status. I would like to do this progressively about 3 times. I’m sure I’ll be completely exhausted by then! but hopefully a little better off financially. I know I should ask an accountant but unfortunately I don’t have one now.

    So my question is this, how will the ATO assess this if I’m not lodging a tax return? Or, do I have to lodge a return showing no income but just showing the sale of the property? I’m keen to hear your opinions on this strategy. Thanks in advance.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    There is no requirement to hold an asset for 12 months to make it CGT free. What you may be thinking of is holding for 12 months to get the 50% CGT reduction.

    Main residences are usually CGT free.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of NuchaNucha
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    @nucha
    Join Date: 2012
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    Ah, thanks Terryw. Yes, I think I was confusing myself.

    Profile photo of MainholmMainholm
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    @mainholm
    Join Date: 2012
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    The ATO will consider whether you are undertaking a "profit making undertaking or plan". Under s 15-15 of the ITAA97 a profit making plan is viewed as statutory income and therefore assessable as ordinary income, not as a capital gain. This particular section of the income tax act doesn't rely on the need to be "carrying on a business" for such an event to be income. It is called an isolated transaction if your intent is just to make profits turning over your PPR quickly.

    If it is purely your intent to make a profit selling a house you declare as your PPR then you are likely skating on thin ice. There is some fundamental case law underpinning this particular issue and you are unlikely to get away with it if the ATO decides to audit. Sounds like the accountant's advice is fundamentally correct but a good accountant would have also given you this background ruling advice as well.

    Profile photo of NuchaNucha
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    @nucha
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    Post Count: 8

    Hmm ….. thanks Mainholm.

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