Calculating Capital Gains Tax CGT on IP sale

Hi

I thought I would step through a CGT calculation for comment to determine what is considered in determining the take home amount after an IP is sold, and what needs to be provided to the accountant when selling an IP.

Example:

• Purchase Price: $200,000, 2012 purchase date
• Anticipated sale price: $350,000, June 2017
• Purchase costs: $10,000 (a lazy calc using 5% of PP – incl. stamp duty, legal, inspections etc)
• Deposit: $40,000 – 20% of PP. This is coming from equity from another IP that was refinanced, so I understand I have to pay these funds back to clear this part of the loan on the other IP??
• Loan outstanding: $220,000 (IP was revalued during ownership - funds used for investment purposes)
• Sale costs: $21,000 (again lazy, so for this calc so using 6% of sale price)
• CGT: Using the CGT calculator Your Mortgage website and adding some very rough figures (from above), the result is $57,715 under ‘old regime’ or $28,858 under ‘new regime’ (see attached screen dump). I assume I would use the $28,858 result here?

Bringing this all together, on a $350,000 sale price:

$350,000

-$220,000 (loan on IP)
-$21,000 (sales costs)
-$40,000 (portion of loan on other IP that was revalued to provide deposit funds)
-$28,858 (CGT payable, based on an income of $80,000)

= $40,142 take home

*Things I haven’t included here are ongoing repairs, rates, insurance premiums, depreciation allowances claimed during ownership
How are these treated through the CGT calculations? Do they add to the CGT paid upon sale? (i.e. am I underquoting the CGT payable by not including these items in the above calculation?).

I haven’t undertaken any renovation works on this IP, however understand that renovations past ongoing repairs would be included in the cost base (increasing costs but reducing CGT payable).

For the accountant, I assume I need:

• Purchase contract and settlement statement
• Depreciation schedule
• Ongoing rates, repairs, PM fees etc (I have used the same accountant during the ownership of the IP, but if changing accountants, this information would need to be provided?)
• Sales contract and price
• Sales costs (agent, legals reports etc)
• Renovation costs (that couldn’t be regarded as a repair)

What have I missed in the above calcs and considerations???

I found the CGT page on the ATO website - Working out your capital gain good with a lot of depth. At this point, I'm wanting a 'back of the envelope' guide to see if I would still be holding a loan with no asset against it so used Capital Gains Tax and Mortgage Calculator | Your Mortgage AU

I understand that I could ask my accountant to do an estimate for me (at a cost) however I found this a useful exercise and hope others find it useful for comment.

Cheers,

 

Step 1 work out the cost base


Purchase price + purchase costs + sale costs

= $231,000

Deposit is irrelevant as is amount borrowed.


Deduct depreciation claimed on building. Lets say this is $20,000

Cost base = $211,000


Sale Price is $350,000

Gain is $139,000

Apply 50% discount = $69,500

This is then added to your other income so you would pay total tax of $45,937 on an income of $149,500


On an income of $80,000 the tax would have been $19,147


That means the CGT would be about $26,790


All very rough

BTW if it is an investment property you would have already claimed repairs, rates etc so these cannot be used to increase the cost base. If you haven't claimed any it may be possible to include them

 

Thanks @Terry_w , agree that deposit irrelevant in CGT calcs (title a little misleading in this sense). I was calculating the total take home amount, therefore taking into consideration loans on IP.

Since the $40,000 deposit came from equity on another IP, I assume that this would need to be repaid from the proceeds from this sale? If not, at what point would the $40,000 need to be repaid?

 

The $40k may not need to be repaid but any interest on it would not longer be deductible once the income ceases.

 

Great.. thanks @Terry_w . For clarity in dealing with the account where these funds came from and interest claimed etc, I'm thinking it better to repay those funds and therefore include it in the sales calculations.

The exercise has highlighted to me that while revaluing IPs to keep going is one thing, these funds will need to be repaid at some point, or accounts will become a mix of deductible and non-deductible funds, making for an accounting mess....