All Topics / Help Needed! / Calculating proportion of CGT

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  • Profile photo of Adam SweenyAdam Sweeny
    Participant
    @asweeny
    Join Date: 2014
    Post Count: 12

    Hi all, question with regards to calculating CGT in a specific scenario:

    I buy a property for 500k and rent it out for the first year. I then have it revalued at 520k before moving in myself and treat it as my main residence. After living there for one year i sell the property for 600k.

    Is my taxable capital gain then (excluding 50% discount for simplicity):
    a) 100k overall gain x 1/2 years liable = 50k, or;
    b) 520k – 500k = 20k gain for the period the property wasn’t my PPOR?

    Thanks in advance guys

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,376

    Hi Adam,
    On the surface, I would say b. is correct. The “valuation at $520k” might be a whole other ballgame though – what does the ATO require? I wouldn’t think an RE agent’s appraisal would be sufficient.

    Anyway, there are others on here who will KNOW… mine is a guess,

    Benny

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    The “valuation at $520k” might be a whole other ballgame though – what does the ATO require? I wouldn’t think an RE agent’s appraisal would be sufficient.

    Not a tax expert so I may be very wrong but I’m thinking…

    I presume the revaluation was done by a valuer? If so, guess the ATO will accept it.

    Yes, also thinking option b.

    I would ask my accountant if I were you, Adam. S/he will be able to give a definite (and accountable) answer.

    Happy selling! 😊

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

    Profile photo of Scott No MatesScott No Mates
    Participant
    @scott-no-mates
    Join Date: 2005
    Post Count: 3,850

    Nil provided that this was your only ppor and that you rented or didn’t own & claim your other place as your ppor.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    First is correct.

    The valuation amount when you move in is irrelevant.
    $500 pp $600 sale = 100k capital gain.
    You have owned it 2 years. Lived in it for 1 year.
    So 50% of the $100k will be assessable gain = $50k then you can apply the 50% CGT discount = $25k
    This $25k gets added to your other income so the max tax would be $12k approx.

    Also this can be reduced by cost base adjustments for most of the expenses incurred in acquiring, holding and disposing of the property (that you have not otherwise claimed).

    See 118-185 ITAA97

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    Nil provided that this was your only ppor and that you rented or didn’t own & claim your other place as your ppor.

    Coudn’t claim the main residence exemption until after moving in.

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Adam SweenyAdam Sweeny
    Participant
    @asweeny
    Join Date: 2014
    Post Count: 12

    Thanks Terry, you really know your stuff. Since it’s a) then it begs the question in what scenario is it actually useful to get a valuation done (with regards to minimising CGT)?

    If i reverse the example and move in for the first year (PPOR), then rent it out for 1 year and no longer treat it as my PPOR (say i buy a second place), would the valuation after the first year then be taken into account?

    a) would be the same as in the first example; but
    b) would then be 600 – 520 = 80k – discounts adjustments etc etc

    Or do I have a choice here with regards to which method is used?

    Profile photo of Scott No MatesScott No Mates
    Participant
    @scott-no-mates
    Join Date: 2005
    Post Count: 3,850

    @Terry_w – I missed that it was lessed from inception so no ppor exemption applies.

    @adam_Sweeny – why so keen to sell after 2 years? Have you considered all of your other options?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    A valuation would be needed if it was your main residence and then become income producing. This would occur when renting out a room, a granny flat, operating a business there or just renting te property out.

    The cost base would then be the value at the time it was first income producing. All the aquisition costs and interest etc until that point are then ‘lost’ or not claimable against the CGT.

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Adam SweenyAdam Sweeny
    Participant
    @asweeny
    Join Date: 2014
    Post Count: 12

    Thanks again Terry

    Scott – its a hypothetical situation

    Profile photo of PetePete
    Participant
    @pjewitt
    Join Date: 2015
    Post Count: 50

    I was advised by my accountant at the time to get a valuation done on my PPOR when I was ready to move out and make it an IP, which could help when it came to minimising CGT when selling. I just got the real estate agent who was selling us our new PPOR to do one when she came out (and put it in writing) to the house with the paperwork for our new PPOR purchase.

    8 years later my current accountant advised me that I should have got a qualified valuer to do the valuation, as the ATO might not accept the valuation done by the real estate agent if/when I decide to sell that property.

    cheers
    Pete

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    Very good point, Pete. Thanks for sharing.

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

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