Capital Gains. When does it start?

Hi guys. I'm about to do Handover on a new build IP this week. My question is when is Capital Gains triggered? I signed the Land Contract September last year, Settled land in May this year, and now build is complete. Bank has done 3 Valuations along the way. First to Approve Finance, another to check just before the land Settled and a third Walk Through Val last week.
IF I was planning on selling (which I'm not) if things went bad, when would my 12 months of "ownership" be up to get a 50% CGT Discount?

 

Generally date of contract.

 

Date of build contract will be a issue since there are two assets Separate assets for CGT purposes | Australian Taxation Office

Since the IP is rented. (And you have QS deductions)


Its possible that if you choose to sell that there is no CGT issue. Insufficient info known about your intentions and issues ? And a GST issue. Selling so soon after completion raises a red flag...Of course you will argue you didn't intend to sell. That's when the ATO review your intention v's MT2006/1. (They will data match it as a high risk sale as you don't have an ABN and its new). Their data matching is reasonably good these days. If they choose they can amend your assessment to exclude CGT and include ordinary income etc.

 

if you're doing like many buy and sales within the year then yes, they could review your intentions but if it is say 12 months, you're basically investing to earn rental income and not operating as a business. The ATO it system are geared on very high net worth individuals nowadays and also people who dob in people.

 

And the OSR in each state who are the guardians of GST revenue on property dealings...Remember GST goes to the states. OSR give 100% of property dealing data to the ATO on an ongoing basis.

The wealth of the landowner isn't a concern at all. Buy in 2014 and sell in 2016 raises questions. Copy of their questions attached here : This is the one for BAS clkaims but the other for unregistered sales is similar. It asks lots of other questions about project to determine if registration should have been considered.

 

It will generally be the contract date, so in your case September last year is when it will start. Generally all the amounts in between would be added to the cost base of the original asset including interest and other holding costs.

Be weary of what Paul has mentioned above regarding the possibility that it gets treated as ordinary income particularly if you've had similar events in the past.

This isn't entirely true, the ATO has signaled a clear intention to target those they think are exploiting the main residence exemption in particular to avoid paying tax but also those who are not buying property on capital account but wish to claim the concessions that would otherwise entitle them to. With their increased access to property transfer registers it is becoming increasingly easy for them to target those who are flipping properties and the case law is slowly stacking up in their favour more often than not.

It's pretty difficult to prove intent in hindsight when all of your actions go against what you're trying to prove was your intent.

This isn't particularly relevant to the above as Sonamic has pointed out that he is really just checking rather than actually intending to sell.

 

As you mentioned it is hard to prove intent, people could have bought, renovated, refinanced and and then rented 1 year out and then realized it is not for them. Who's to say circumstances change, lost job, divorce, insufficient funds etc. As mentioned, if you are doing it regularly yes otherwise, there is no qualms about it. Friend Sold his camberwell place just like a month ago. Stayed in it for 3 months, and got a ATO private ruling for his sale as an agent came to approach him for sale and is covered under the PPOR exemption. Personally it is really hard to flip a property let alone to make a gain. The ATO has got bigger fish to fry (and i know a bit of about their IT systems). If you look at the place that was bought in caufield victoria where millions was taken out of australia, did the ATO detect that being it was scheme to get money paid to others.

 

Thanks for the replies.
It was a "worst case scenario" type question. I have no intention of selling. But life is not a cut and dried journey. Getting my facts straight for Justin.

 

A ruling is only as valid as the facts in the application. I recently was approached by someone who also thought she was safe but ATO queried how the main residence exemption could have applied and queried where the income was in the return. She has told them it was exempt. And then realised she had dug a hole she could not get out of. The ATO went to council and noted the reno was so substantial it could not have been occupied. No water, power and floors ? Dates etc also conflicted. Didn't have any water rates showing water or power use for offpeak HWS either !! Hence it sank the claim that it was occupied as a residence. Not occupied after sale which was done by agent in final weeks of reno. I couldn't help as it appeared profit was the motive. They also were thinking GST may have applied to sale and were exploring extent of the build. ATO were talking penalties for a false statement and that was a red flag for me.

 

Great example Paul!

 

@Paul@PFI exactly right - "A ruling is only as valid as the facts in the application" so unless you're making stuff up etc, yes you're going to be taken. Lots of people especially architects do massive substantial renos (there is nothing wrong with that). The only issue is if you didn't even stay in the property after the renovation - then you're just looking for trouble. This is no different to people claming first home owner grants and not moving in it at all. ATO will data match everything from the date you registered your driver's license change of address, rates, phone bills, gas, water and payTV. if you're stupid enough to claim PPOR exemption without even moving in then you're asking for it. if you renovated (substantial or not) after 1 year divorced and then had to sell for a gain, ATO is not going to do anything.