My accountant said that with a wrap, the ATO considers the property to have been sold, therefore, CGT is payable by me from settlement date. This would be a pretty nasty hit after just signing the deal. Is this correct?
Hi stilllearning
My suggestion would be to try to work with an accountant who is familiar with wrapping. I say this because your accountant seems to be unfamiliar with the ATO’s position paper on wraps where they talk about capital gains from wrap deals being treated on an “emerging profits” basis.
Wrap savy accountants seem to be few and far between but I’m sure you’ll get a recommendation from experienced wrappers if you place a post or two on the various forums. There is also a state based list of wrapping specialists on the Vendor Finance Association’s web site.
I hope this helps.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Hello,
Any experienced wrapper can correct me if I’m wrong but I thought that the settlement date was 25 years or so in the future, or when they refinance whichever is sooner, therefore you dont have to pay the CGT liability until you have received a either 25 years of payments or settlement cheque from the refinance, either way you will have made more than the potential liability.
Pete
Hi Pete
Actually the ATO assess the capital gain from the date of exchange of contracts, not settlement. Hence the ATO position paper talking about “emerging profits”.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Hi Paul,
So when do you have to pay the CGT?
Surely you dont have to include the ‘on paper’ capital gain on your tax return that year???
Pete
Hi Pete
You can now pay for it on a yearly basis on an “emerging profits” basis. Of course, when you are refinanced out by your wrappee, you are then liable for the remainder of the capital gain.
I hope this helps.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Check out Bantacs.com.au
There is an interesting article on the very subject.
Scully[grad]
ATO Interpretative Decisions on installment contract sales (wraps):
ATO «ID» 2004/25
ATO «ID» 2004/26
ATO «ID» 2004/27
ATO «ID» 2004/28
ATO «ID 2004/29Terryw
Discover Home Loans
North Sydney
[email protected]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
Thanks Terry, Pete, Paul & Scully.
Will refer the ATO rulings to my accountant. We will both learn something new this week.
It can also depend on whether or not you are seen to be in the “business” of wrapping. For example, I have many wrap houses, therefore I am a business, therefore I can spread out the Capital Gain portion.
However my sister, who sold a country property on a wrap because it was the only way she could sell it, is NOT a business because it’s a once off transaction, and she will be liable for capital gains tax upfront.
Very important to get a wrap savvy accountant!Keep smiling
Felicity
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