capital gain tax

Discussion in 'Accounting & Tax' started by Jorgem, 21st Oct, 2019.

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  1. Jorgem

    Jorgem Member

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    We bought investment property in Perth March 2015 , and have rented property all this years with tenants.

    We want to sell our main residence to downsize into our investment property within the next two years.

    is there anyway that we can avoid paying the capital gain tax if we were to sell the investment property at some later stage.

    Thanks

    Jorge
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Only by not making a taxable gain.
     
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  3. wylie

    wylie Moderator Staff Member

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    Say you rented it from day one for 15 years and then live there for 15 years as your main residence, my understanding is you would pay capital gains tax proportionate to the time as a rental and as your main residence.

    In the 15 year rented, 15 year main residence case you pay tax on half of the gain.

    And if you move in and spend a big chunk of money doing a major renovation you will be paying a lot of tax on the gain because it doesn’t matter if it isn’t worth much when you move in. It is always measured by time as rental and time as main residence and tax paid by proportionate time as each type of ownership.

    Is this right @Terry_w?

    And if so, I would sell it and do my major renovation on a new purchase that you have not rented out from day one and you won’t be taxed on the gain if you do a big renovation (assuming a few other things of course).
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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  5. Jorgem

    Jorgem Member

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    Many thanks for your reply, it made things a bit more clear. Jorge
     
  6. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    That wasnt tax advice. Maybe it was from a mod?????

    Love the..is that right? Reno comments are just incorrect
     
  7. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Really ?
     
  8. Never giveup

    Never giveup Well-Known Member

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    We bought prop in 2016 and planning to sell now (2020). During this time it was rented and want to ask if we sell the property and use the capital gain to invest in something else -will we still pay capital gain tax?
     
  9. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    There is no rollover relief for CGT events in most cases. However the issue of whether tax is paid will be influenced by the CGT calc and the tax rates of the owners
     
  10. wylie

    wylie Moderator Staff Member

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    I'm no expert. Just putting a comment from what I've picked up from the forum.

    Would be good for you to clarify if it is wrong.
     
  11. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Nah I saw that and wanted to delete it but...It was October. No idea.

    You were referring to the issue that BENEFITS some owners of property subject to pro-rata CGT calcs. This allows non-deductible ownership costs to add to the total costbase before the apportionment. But for those who live there first s118-192 applies and yes you have that spot on. This requires the costbase to reset on the date it first produces income. Thereafter that gain can still be apportioned if the use changes.

    eg Fred and Mary move into their new home at Caloundra. 1 year later then rent it out. s118-192 resets the costbase. Then 2 years later then move back in and live in it for a further 2 years. Then rent it another two.
    1. Ignore the original historical cost of the home
    2. CGT costdate is date they move out AND its costbase is MV on that day
    3. When they sell they can add 3rd element costs for the two years they lived there the second time (ie aftre s118-192)
    4. And Two years would be taxed.

    Many people mistakenly believe s118-192 means that 3rd element costs cant be used. They can for the period AFTER s118-192 but only if the private use changes after the s118-192 event. And then consider CGT absence rule etc.
     
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  12. Never giveup

    Never giveup Well-Known Member

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    Thanks @[email protected] - so in simple words I do need to pay CGT regardless I hold the revenue or invest?

    PS-I work full time so it will be addded into my taxable income
     
  13. Trainee

    Trainee Well-Known Member

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    it would be added to your taxable income even if you didnt work and lived on the streets.

    Just because there are different elements added to make taxable income doesnt mean they are dependent.
     
    Last edited: 21st Feb, 2020
  14. Trainee

    Trainee Well-Known Member

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    dont use the word revenue here. It means something else.

    the cg event is the exchange of contract of sale that settles.

    you may not have to pay tax on the cg if you have capital losses to offset.
     
    Last edited: 21st Feb, 2020
  15. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    You are assuming you need to pay. Yes there is a taxable event concerning a "CGT event"such as a sale. Whether tax is payable or its a trivial sum is anyone's guess. Its quite a normal expectation when you BUY property to expect to pay tax on a future profit if there is one. Its strange to now ask why you need to pay tax.
     
  16. Trainee

    Trainee Well-Known Member

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    Read too many american investment books.
     
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  17. Zozo

    Zozo Member

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    Hi guys!
     
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  18. Zozo

    Zozo Member

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    Tricky question about residential rental property sale in a loss (or not)

    I have bought a residential property in 2009 for 350.. and got rented 9 years later in 2018 so it become a residential rental property ( i was renting elsewhere).. before it was rented it got valued ( properly) for 740.. and 2 years later got sold in 2020 for 650..

    Question no1. Do i benefit anything out of the 2 year loss .. and if yes

    Question no2. Can i use the capital loss in the 2 years for tax purposes? If yes..

    Question no3. Can i use it to lower my income taxes ?


    Thank you. (Sorry about my English.)
     
  19. craigc

    craigc Well-Known Member

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    Read up on Terry’s tax tips, but capital losses are offset against future capital gains only and not ‘regular’ income being taxed.

    Also ensure your CGT calculations are reviewed and checked by a good accountant and keep all your records for a long time. (I think it’s 7 years after you use the losses against income, experts will confirm).
     
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