Is capital gains tax simply calculated on the difference between your purchasing / renovating costs and your sale price? For some reason I thought if you purchased under market value and then got the property valued you could then renovate and sell with the "profit" that was taxed the difference between the valuation / renovating costs and the sale price. So for example Purchase price $300k Purchasing costs $25k Renovation $30k Total cost: $355k Sell price: $420k Profit: $65k Tax rate: 38% Capital gains tax to be paid: $24,700 Or is it like this Purchase price: $300k Purchasing costs: $25k Total cost: $325k VALUATION: $390k Renovation: $25k Valuation + renovation: $415k Sell price: $420k Profit: $5k Tax rate: 38% Capital gains tax to be paid: $1,900 The figures are basic and I have not detailed selling costs etc but I hope you get the idea. I am obviously trying to reduce my capital gains tax so any creative (legal) ideas would be greatly appreciated. Thanks in advance. Al.
You can only apply the market value if you bought from an associated party (paragraph 112-20(1)(c) of the ITAA 1997)
Dont forget to add in - Legals to buy and sell, stamp duty, selling expenses (often a big one), loan break costs and the like. 1. Did you ever live in it ? If so, when. 2. Was there ever a period it was NOT rented ? 3. How long did you own it ?.. Are all q's I would be asking a client before a calculation is even performed. Important to consider a number of exemptions before calculating if there is a profit. Then if there is a profit can it be pro-rata calculated ? Is there a 50% CGT discount or does another tax rule impact tax ? Then finally, what is the marginal tax rate at the time when it is proposed to be contracted for sale. There is no 38% marginal tax rate !! Then there is taxpayer specifc knowledge ...Do you have private health insurance ? Help debts, Centrelink benefits etc ? All can impact
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