I am a little confused at the advantages/disadvantages of building a new investment property. Can anyone help?
Say the land costs me $80,000 and the property costs me $160,000 thus a total of $240,000
Lets presume that I sell in 5 years time for $300,000 ie a profit of $60,000.
What are the CGT implications when I sell and what tax benifits would I get along the way?
Thanks in advance.
Andy
IMHO,contact the ATO about CGT on your IP
Hi Andrew
In your example, basically you would pay CGT on the difference between the sale price and initial costs i.e. $60,000.
Because you have owned the asset for more than 1 year, you are entitled to a 50% discount on the CGT. So you would only be taxed on $30,000 at your marginal rate.
If your marginal rate is 31.5%, you would pay about $10,000 in Cap. Gains Tax.
That’s the simple version. You may also be able to reduce the end sale price by the costs of selling (eg if the RE agent fee is $10,000 then your gain becomes $60,000 – $10,000 = $50,000 so your CGT will be lower).
Along the way you may also get many tax benefits, eg depreciation and special building write off, but these will also affect the end CGT.
Tas [
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IMHO,contact the ATO about CGT on your IP
Geeze Shane, if you can’t offer better advice than that then perhaps you shouldn’t be offering any. Have a read of many posts in this forum that explain how cgt works! Humble? you’ve got to be kidding.Yeah Doods – like you know more about CGT than ATO – right!
I know Oscar (sb’m middle name I just gave him)isn’t really worthy of a reply, but I just thought I should say “I thought this forum was about giving advice on simple questions ‘like how does cgt work’ to inexperienced investors, so that they don’t have to hassle the poor overworked ATO call centre with such simple questions”.
U need to work out your cost base.
Does the amounts mentioned include GST?
The land in question may include GST depending on the purpose u use it for.
Is the property subject to GST or is it input taxed?The sale of any new residential property “that has not been sold before” is subject to GST….provided you are running a business…..tricky area.
You may actually have 2 CGT events happening. One on the land and one on the “improvements” ie the house. Holding costs can come off the cost base ie legals to buy/sell, agents commission etc.
Hi,
This is similar to the example given by Dymphna on the weekend course, went a little something like this:
You are doing a residential development with the intention to sell:
Buy land $55,000, includes $5,000 GST
Build house $165,000, includes $15,000 GST
Sell price $275,000 includes $25,000 GSTYou claim the tax credits of the $5K+$15K involved in building the asset, and pay the GST of $25K included in the sale price.
HOWEVER ….
If you cannot sell the property straight away, you have to hand back the $20K GST credits you claimed BUT if you sell within 5 years you still have to pay the government $25K and you can’t reclaim back your $20K. If you hold for 5+ years, you obviously still lose your initial $20K but no GST is payable on sale of the property.
….. just passing it on, sound plausible? If yes, the moral of the story is now your market up front and DON’T RENT unless you plan to hold for 5+ years.
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MelHi Melanie,
Does it make any difference if you live in the property first ( just after completion)?
Those are whole heap of taxes that didn’t know could apply
Kavita,
In terms of CGT, it will just mean that you need to apportion the CGT payable based on the time the asset was used for income producing purposes, and the time it was used as your primary place of residence.
A basic example is, you have it for 10 years, you live in it for 1 year, then CGT is apportioned and payable on 90% of the gain. You will then need to factor in the 50% concessions.
In terms of GST, be sure that you are registered, if you want to claim the credits.
David Femia
Femia Property Group
Property Investment Consultants
http://www.femiapropertygroup.com.au
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