Just a quick basic question…
If you buy a house, renovate and immediately sell, within 12 months, is this classed as CGT or income tax?
And if you do 2 or 3 or 4 deals like this in one financial year would the type of tax change?
The people doing this have no paid employment.
Thanks in advance, G7
I think you may find it is income tax. There was a Business Review Weekly article touching on issues such as this. I think 4 March 2004 issue
There would be no 50% discount, so income tax.
Terryw
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g7,
The more frequently you do it the more likely you are to be considered in business by the ATO. This is not necessarily a bad thing. If you are going to turn the properties over in less than 12 months you will not get the CGT 50% discount so there is no benefit to you in trying to come under the CGT provisions. On the otherhand if you are in the business of buying and selling houses you will be able to claim a tax deduction for items not included if CGT applies. For example telephone and motor vehicle costs. Another advantage is if the property makes a loss you will be able to offset this against any other income. Losses caught under the CGT laws are quarantined to only be offset against other capital gains. But the big catch is GST. Using the margin scheme will minimise its impact. You need to do the numbers on each house but the disadvantages of GST probably out weigh the advantages of being in business.
Sorry I can see this has created more questions for you than answers. The main point is if you do this in a business like manner and frequently you will be considered a business by the ATO anyway.Julia Hartman
[email protected]
http://www.bantacs.com.au
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