Forums / Property Investing / Commercial Property / Capital gains tax rollover for a commercial property – what are my options?

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  • Profile photo of Dave4455Dave4455
    Participant
    @qprjames
    Join Date: 2011
    Post Count: 15

    I have just sold my motel business for 500k which was originally worth 250k when I bought it. Therefore after 50% asset reduction on capital gains has been applied, this means I am left with a capital gains tax bill of $125,000.

    I doubt I will be buying a new business as a rollover with that 125k. I also don’t think I qualify for any further discounts as I am 35 and have not had the business for very long (7 years).

    Will this mean I will just have to hand over this $125,000 cold hard cash direct to the ATO? It is currently sitting in my personal bank account gathering dust/interest.

    Are there any other options open to me? I’m not sure, but it sounds like there might be an opportunity to put the whole amount of $125,000 into my superannuation account. Given my super balance is currently only 30,000 which is extremely low for someone of my working age, this would seem like the ideal thing to do, however I’m not sure if it is even an option available to me?

    I would appreciate any help or assistance with what to do going forward.

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    You’ll want to chat to your accountant and FP about the best pathway – I’m not an accountant but it looks like you haven’t correctly calculated the CGT component.

    There’s specific rules regarding putting the funds to super etc – with these kind of $$$ figures you’re best getting specific advice for your exact situation, instead of general advice on an internet forum.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

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

    Hi Dave,
    I’m with Corey on this – I think you need assistance with calculating your tax bill. From the little I can see, it seems to me that you think your Capital Gain is the Tax to be paid. That is not the case, and you don’t appear to have allowed Buy and Sell costs either which would have impacted on your Gain.

    As such, I think you will have a nice surprise if you sit down with an adviser who handles this stuff on a regular basis.

    Benny

    Profile photo of Dave4455Dave4455
    Participant
    @qprjames
    Join Date: 2011
    Post Count: 15

    Thanks for the feedback guyz. Sorry I’m not very business minded, as i’m Just good at running a successful business! The latter normally looks after everything else! :)

    Apparently i can put this capital gain/rollover into my supernnuation account. And seeing as i’m Almost 40 years old with only $35,000 in my super account (eeek!) this extra $125,000 will come in very useful!

    If anyone has any further info on this super rollover would be great to have a link to something to read. I would ask my accountant but, as a non-business minded person, i already him soooooo many questions its not even funny!! :p

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

    Hi Dave,
    I can’t help with the Super thing at all – just a passing thought re the opportunity though:-

    As I read it, you have already gained $125k from the Sale, and were allowing a further $125k to be set aside to pay CGT. Given that it is likely that the CGT owing could be far less than allowed, would a cash amount nearer $180k (rather than $125k – and yes, I’m guessing…) be able to be parlayed into some other opportunity that will nett you a great return? Of course, you might simply want to pay down debt, rather than invest. And that is valid too.

    Maybe have a bit more of a think, and perhaps a long chat with an adviser, around ALL of your options before settling on the Super one. Then take the best option for you. ;)

    Benny

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

    It seems the property has been sold for $250,000 more than purchased, but there are other costs that can be used to reduce the CGT – stamp duty, legals, agents fees etc. Let’s say this comes to $50k, that would make a gain of $200,000.

    you could then apply the 50% CGT discount so this becomes $100,000. This is added to ‘your’ other income. So if you were working and earned $200,000 from other sources you might pay around $47,000 in tax. If you don’t have any other income at all then the tax would be more like $26,000.

    Huge difference to your estimate.

    There are plenty of things that you can do to reduce the tax such as contribute to super, prepay interest, realise capital loses.

    There are also small business concessions:

    a) the small business 15-year exemption
    b) the small business 50% active asset reduction
    c) the small business retirement exemption and
    d) the small business rollover

    b) the small business 50% active asset reduction might be available in your situation.

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

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

    Profile photo of thecrestthecrest
    Participant
    @thecrest
    Join Date: 2004
    Post Count: 992

    Hi Terry.
    Great post, also affects us as having sold a motel with the CGT factor.
    How is the 15 year exemption applied ? Is it applied to the one business or can it be applied where we have been substantially in the same business class for 15 years, similar to the rollover, where CGT can be deferred and it can be rolled over if one is buying substantially the same type of business ?
    Any ideas ?
    Cheers
    thecrest

    thecrest | Tony Neale - Statewide Motel Brokers
    http://www.statewidemotelbrokers.com.au
    Email Me | Phone Me

    selling motels in NSW

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